Will the price of boxboard and corrugated paper rise again on June 1? The latest news is here!

2024,05,20

As expected, price increases for containerboard and corrugated paper are coming in June. Analysts say several paper groups are planning to implement price increases announced for the second time this year after the first round was only partially successful. Several commodities and financial analysts, including Fastmarkets RISI, RBC Capital Markets and Truist, confirmed in recent reports that majors such as Cascades, George Pacific, Pratt Industries and Vesellock plan to raise prices on June 1 Domestic containerboard prices in the United States.

With the exception of Cascades, these companies plan to increase containerboard prices by US$50/ton and corrugated paper prices by US$80/ton from June 1. This is the same price increase predicted in April for International Paper to take effect on June 1.

According to Green Markets, International Paper plans to increase the price of containerboard by $50 per ton and the price of corrugated paper by $80 per ton. International Paper declined to comment publicly on forward-looking pricing.

RBC said in a note to investors on Sunday that Cascades is targeting price increases of $60 per ton for containerboard and $80 per ton for corrugated paper starting June 3.

This is the second attempt to raise domestic prices in 2024 after not raising paper prices for about two years. Five of the six largest containerboard and corrugated box companies in North America - Cascades, International Paper, American Packaging, Pratt Industries and Vesellock - initially announced nearly identical linerboard price increases effective January 1 US$70/ton to US$75/ton. These five companies account for nearly 70% of North American containerboard production capacity. They subsequently announced higher price increases for other papers, and other companies also raised prices.

In a May 9 letter to investors regarding the Cascades price increase, RBC said there would be upside to the assumption of more modest pricing increases starting in 2025 if the new price increase is successfully implemented.

But announcing a price increase and receiving the higher price from customers are different situations. Some paper groups have contracts with customers that require significant changes in the Fastmarkets RISI index, which is based on open market orders, before their announced increases can be confirmed.

Fastmarkets RISI showed no price changes in its monthly pricing report on January 19, raising questions about whether the price increases announced by the paper group would be sustained. Fastmarkets RISI's monthly report on February 16 showed that the market only partially recognized the new price - the price of recycled kraft containerboard increased by approximately US$40 per ton instead of US$70-75 per ton, sparking further controversy. The index's most recent monthly report for April showed prices were flat.

These expectations are consistent with forecasts from a survey of independent corrugated box converters released by Bank of America Global Research on April 11. The survey shows that 70% of the respondents expect the pricing of containerboard to be higher in the next 12 months, and 71% of the respondents said that the price of cartons will be higher during the same period in 2019. They generally predict that the company will try to increase in the second or third quarter.

Michael Roxland, senior paper and packaging analyst at Truist Securities, said in a May 8 letter to investors regarding Pratt Industries' new price increase, "We believe this increase is due to an increase in prior RISI index pricing. and a lack of adequate recognition of the ongoing costs” of inflation, Platt cited the latter in a letter to clients. "

Royal Bank of Canada (RBC) made a similar statement in a May 9 letter. Bloomberg corrugated packaging market analyst Ryan Fox pointed out in Green Markets on April 26 that International Paper is about to announce a price increase. Fox also noted at the time that once one company implements a price increase, others typically follow suit: "I'm very confident that we'll see other companies join the bandwagon in the coming weeks."

Overall, industry observers and analysts say the timing of the price increase is quite unusual. Demand and production have been soft in recent quarters, but these factors are generally positive when paper groups raise prices.

Demand has improved so far in the second quarter, according to recent earnings calls, and the American Forestry and Paper Association's first-quarter containerboard report showed a 7% year-over-year increase in production. Still, first-quarter containerboard shipments fell 1.1% year-over-year, according to the Fiber Carton Association, with Fox calling the quarter “the worst shipping quarter in eight years.”

"Demand is pretty weak. But our model is not just about supply and demand - it does include some raw material costs," Fox said. "When those raw material prices change, that triggers some action."

For months, analysts have described raising prices as a rather unusual move amid current economic conditions. Normally, markets support rising prices during good times, but the latest surge has come during a period of tight demand. Roxland noted that historically producers have successfully raised prices when operating rates were above 95%, but the industry's first-quarter operating rate averaged 90.8%.

But just as Pratt cited cost inflation in its price increase announcement this month, executives at several leading paper groups also cited it as a factor driving up operating costs despite lagging demand and production in recent quarters. . Michael Roxland pointed out that since January 2023, the price of the main raw material OCC has increased by approximately 255%.

International Paper, U.S. Packaging, and Graphic Packaging International all reported inflationary cost pressures on their latest earnings calls over the past two weeks. While they generally believe demand improved in the first quarter from last year's trough, supply and demand dynamics remain uneven.

Author:

Ms. Lisa Lu

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sale2@cxpack.com

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