Containerboard prices haven’t moved up this spring and they won’t be moving up until this fall at the earliest. Since last February, containerboard producers have been trying to push through a $50 per ton price increase. But in a phone survey of independent corrugated box makers throughout the country last week, it became very clear that this latest price increase attempt is dead. Simply put, board suppliers aren’t talking about it anymore.
If anything, there is slight downward pressure on containerboard prices. But it is coming from the second and third tier players, not the major containerboard producers.
“I have no difficulty getting any of the [linerboard] grades that I buy,” says an executive with an independent box maker in the East. “Unless the economy turns around, we’ll get through the summer without a price increase. Suppliers are knocking on my door that I haven’t seen in a while.”
“The pressure is off,” says another executive in the same region. “Last week International Paper told me the support wasn’t there. And its competitors aren’t pushing it.”
Tragedy in Mississippi--
Speaking of IP, on May 3 the recovery boiler at its Vicksburg, Miss., linerboard mill exploded, killing one worker and injuring 17 others (see page 3 for more details). Will this tragedy make a difference in IP and its brethren getting a price increase through later this year? The mill produces 560,000 tons per year and will be out of production for at least two months. It represents over 10 percent of IP’s total containerboard production and roughly 2 percent of U.S. linerboard supply.
“With operating rates in the mid- to upper-90s—containerboard at 97 percent—a prolonged outage would tighten supply and demand fundamentals,” states Mark Wilde, paper industry analyst, Deutsche Bank, New York City, in an emailed report. “IP’s box plants consume around 70 percent to 75 percent of its mill tonnage. The impact on outside sales will be more profound. IP is a large seller of containerboard into the domestic and export markets. Customers will have to scramble for supply. The Vicksburg outage immediately raises the probability of an uptick in industry prices over the next few months.”
A few independents aren’t as certain that this event alone will help get a containerboard price increase through this fall. A lot more would have to occur (a much more robust economy, for example) before prices could rise. It will be interesting to see how quickly this mill gets up and running again.
No one likes to see a tragedy like this be the cause for downtime. But even if this didn’t occur a number of board mills would be taking fairly significant downtime this month and next. This will be scheduled downtime for maintenance that, frankly, for many mills is probably long overdue. As pointed out earlier, operating rates have been high, not because business is all that robust right now in the U.S., but because the U.S. dollar is weak. This allows the U.S. integrated producers to sell their tons overseas. And who can blame them for taking advantage of this situation? However, there are already preliminary indications that the U.S. dollar is bottoming out. Once it starts gaining strength, will U.S. board mills show the inventory discipline needed and lower operating rates? If history is any indicator, don’t count on it.
Rising Inventories--
Speaking of inventories, the American Forest & Paper Association reports that last March total containerboard inventories (mills and box plants combined) rose 2 percent, ending up at 2.53 million tons (see page 10 for more information). This can’t be encouraging for containerboard producers. In addition, the Fibre Box Association states that through the first three months of this year actual shipments were down 2.3 percent while average week shipments fell 0.7 percent. No matter how you slice and dice the figures, they represent a slowdown.
Yet, when you ask the independent box makers how their business is doing, you get a mixed bag of responses that ultimately have more to do with which niches they’re in that the general state of the U.S. economy. Current business conditions reported range from spotty to sluggish to inconsistent to holding steady. One box making executive described his current business as ebbing and flowing from week to week, with stable margins.
What’s really hurting everyone in the box business right now, whether integrated or independent, is energy costs: natural gas, electricity, and diesel fuel.
“We’re in the worst part of the country for energy and it is killing us,” says a box maker in New England. “Our margins are squeezed not because of business but because of energy.”
Rising energy costs and a slowing U.S. economy are putting the squeeze on all box makers nowadays. Moving forward, will the integrated producers be able to squeeze out more money for containerboard rolls before the end of this year? Ultimately the strength of our economy will dictate that. And unless it makes a quick turnaround, the big challenge for the integrateds will be in keeping board prices stable.OBM
Callout: Will the IP board mill tragedy make a difference in getting a price increase through later this year?
