The Jefferson Smurfit Corporation has warned that the temporary closure of some of its paper mills will hit profits this quarter. The warning came as it reported a sharp fall in third-quarter profits.

Lower product prices and higher costs led to a fall in profits to $8 million (£5.4 million) for three months to the end of September from $22 million in the same period last year. In a difficult US paper and packaging market, the results were ahead of forecasts.

JS Corp president and chief executive, Mr Dick Graham, said demand was strong and prices for most products were now firm and starting to improve.

But he warned that scheduled mill downtime in the current quarter would have a negative impact on profits, reducing fourth-quarter net profits by about $5.5 million and cutting earnings per share by about five cents because of the high level of fixed costs in the mills.

The St-Louis based company is a 46.5 per cent associate of the Jefferson Smurfit Group. The decision to close some mills in the current quarter comes against the background of the high level of stocks built up in the industry last year in the final quarter when demand is traditionally weak. This led to a sharp drop in product prices. The industry is fearful that the fragile product price recovery now underway could be destroyed if companies add to stock levels in the current quarter.

JS Corp had begun to implement price increases for containers and container board, Mr Graham said. But he said the operation environment remained tough with some resistance to price increases. Of the 12 per cent rise in box prices announced in September, only 3 per cent has gone though so far, though JS Corp said another 5 per cent should be accepted this month by customers. A further 12 per cent box price rise has been announced for November following a $50 per ton increase in the price of linerboard. But there is no guarantee that customers will pay this increase.

There were signs of an upturn in the packaging business and price increases for coated boxboard and folding cartons had been initiated, Mr Graham said. Carton shipments were 6 per cent higher than in the third quarter of 1996.

"We expect continued improvement in the market climate which should allow additional price recovery in containerboard, containers and newsprint in the current quarter", Mr Graham commented. Average newsprint prices were about 5 per cent up in the second quarter as the company got the full advantage of a price increase announced in the spring, and newsprint shipments were 5 per cent higher than levels a year ago.

Earnings per share for the third quarter fell to seven cents from 20 cents in the corresponding quarter of 1996. Sales in the quarter were marginally lower at $832 million, down from $834 million.

Higher operating costs - up to $703 million from $683 million - partly reflected the increased cost of recycled fibre. The company recorded a loss of $3 million or three cents per share for the first nine months on sales of $2.4 billion. This compared with profits of $102 million and earnings per share of 92 cents on sales of $2.6 billion for the first nine months of 1996.