The paper industry has been turning over a new leaf. Containerboard prices are climbing, operating rates are tightening, and Kimberly-Clark may have just upended the future of paper production. Investors who wrote off the sector may want another look.
Reinventing the roll: Kimberly-Clark says it has found a viable alternative to wood fiber in hesperaloe, a desert plant with unusually long, slender fibers. The plant can produce paper products that are both stronger and softer than traditional wood-based alternatives. The company spent more than 20 years evaluating 70 potential materials before identifying hesperaloe. Executives have called it their "Goldilocks" discovery.
- The company has invested ~$250M in hesperaloe, secured 30+ patents, and is opening a pilot facility in Arizona next year ahead of larger-scale commercialization.
- Hesperaloe requires less water than comparable crops in the US Southwest, and early cost signals suggest it could compete favorably with wood fiber at scale.
The Packaging Tailwind
While Kimberly-Clark's fiber breakthrough is still years away from commercial scale, the packaging industry is already seeing a more immediate tailwind. Containerboard operating rates climbed to nearly 95% in Q2 after a wave of mill closures in 2025 removed nearly 10% of North American production capacity. Inventories fell to their lowest level in 15 months by the end of June, prompting Packaging Corporation of America to describe the market as "tight" as legacy box shipments rose 4.1% year over year.
- International Paper announced its third containerboard price increase of 2026, raising prices by $80 per ton from Sept. 1 after Packaging Corp led with a $140 per ton hike.
- The company reported $6B in Q2 sales, but higher input costs and planned mill outages pushed it to a $12M net loss from a $75M profit a year earlier.
The next chapter: IP CEO Andy Silvernail warned that geopolitical uncertainty, the war with Iran, and higher OCC costs could limit the near-term benefit of higher containerboard prices. The company now expects North American demand to remain relatively flat through the second half of 2026. If producers can hold the line on pricing, earnings could finally start catching up.
