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In a bold move questioned by most in the marketplace this week, five of the six largest North American containerboard and corrugated box companies announced containerboard price increases for Jan. 1. The $70/ton and $75/ton brown linerboard increase, if implemented, would be the first one in almost two years for the domestic market in the US and Canada.
North America’s No. 1 producer by capacity, International Paper (IP), No. 2 WestRock, No. 3 Packaging Corp of America (PCA), No. 5 Pratt Industries, and No. 6 Cascades announced and were confirmed with nearly identical price increases, with all starting their increases on Jan. 1. The last time a domestic linerboard increase was announced in January was in 2010, a Wall Street analyst told Fastmarkets’ PPI Pulp & Paper Week.
The IP, WestRock, and Cascades increases are $70/ton on linerboard and $110/ton on corrugating medium. PCA’s increase is $70/ton on linerboard and $100/ton for medium. Pratt’s increase is $75/ton on linerboard and $110/ton on medium. IP and Cascades also include $50/ton increases for white-top linerboard and WestRock’s increase for white top linerboard was listed as $30, according to a letter from the company obtained by P&PW. Also, the WestRock increase is for its business in North America and exports to Mexico.
The five producers with the Jan. 1 price increases manage on a combined basis almost 70% of North American containerboard capacity.
“Current market conditions necessitate that we announce a price increase … (and) all changes will be effective with orders accepted for production with delivery on or after January 1, 2024,” WestRock said in its letter dated Nov. 30. “This price increase applies to all orders accepted for customers in the United States, Canada and export to Mexico.”
Current market conditions necessitate that we announce a price increase … (and) all changes will be effective with orders accepted for production with delivery on or after January 1, 2024.
IP’s increase comes one month (37 days) from when the company announced it was permanently shutting a large 795,000 tons/yr unbleached kraft linerboard mill with two machines in Orange, TX. The Orange mill is to be retired by yearend, the company said.
The increases were unique for various reasons and shocking to some.
US actual box shipments are down 6-7% in the last five quarters through third-quarter 2023 on a year-over-year basis. And US containerboard mills in the last five quarters operated at just 85% of their capacity, as they have largely lined up market-related downtime each month since September 2022.
Also, on Dec. 1, the Institute for Supply Management’s (ISM) business manufacturing PMI in the US was 46.7%, unchanged from October’s 46.7%, and the ISM reported that the “overall economy continued in contraction for a second month after one month of weak expansion preceded by nine months of contraction.” US corporate supply chain managers provide insight for determining the ISM level.
As a counter, large integrateds such as IP and PCA say their box demand has increased since a low in the first quarter. And end-user destocking that began in mid-2022 that decimated box demand in the US for the last one and a half years has ended, they said. PCA during a recent earnings call reported an 8% increase in shipments in the third quarter from their shipment total in first quarter. For the US industry, however, US actual box shipments gained only 1.6% based on third-quarter shipments compared with the first-quarter shipment total, according to Fibre Box Association figures.
PCA was the first to announce the Jan. 1 increase. The company is the top performer in the North American board and box business, with a third-quarter 2023 margin of 21.3%, from 24.1% in third quarter 2022. The company is also the most highly integrated along with Pratt Industries, which means that PCA sells very little linerboard in the open market domestically, contacts said.
Most boxmakers in mid-November told P&PW of continuing uncertainty about demand and box-ordering pace, and that they expected a slow start for their business at the beginning of 2024.
Late this week, one executive with one of the largest six integrated firms told P&PW that the company’s price increase was necessary because of “not making money on a cost of capital” basis today.
“People are going to have to make choices,” the contact added, referring to the increase.
Others questioned how boxmakers could raise prices while at the same time they are mostly short on orders or they have some customers whose business remains less than strong.
“Demand is slightly better at best or just stable,” one mid-sized integrated said.
However, a large Midwest-based recovered paper processor said third-quarter’s 5.2% real GDP rate, and what appeared to be strong Black Friday and holiday shopping were positives for now and leading into 2024. US GDP increased at a 5.2% annualized rate last quarter, revised up from the previously reported 4.9%, the US Dept of Commerce’s Bureau of Economic Analysis said this week
Contacts further told of continuing inflation and higher labor costs hitting their bottom lines. At Fastmarkets’ International Containerboard Conference on Nov. 7 during the CEO/Leaders panel in Chicago, Smurfit Kappa Americas CEO Laurent Sellier, speaking to a claimed 16% decrease in cost for the business, stressed that cost pressures remain today for boxmakers.
US unbleached kraft linerboard prices increased by $220/ton in a 17-month surge during COVID in 2020 through to early 2022. Since that nearly two-year runup, prices are now down by $110/ton in the last 12 months, according to P&PW pricing surveys.
Further, linerboard prices dropped $20/ton last month on the domestic market in North America for 42-lb unbleached and 35-/36-lb High Performance linerboard, and for 30-/31-lb recycled linerboard, according to the P&PW survey of buyers and sellers.
The $20/ton decline for November put 42-lb and 35-/36-lb at $820-830/ton and 830-840/ton, respectively, and dropped the 30-/31-lb recycled linerboard price to $720-730/ton.
With the uncertain market demand condition, box buyers, boxmakers, and other market watchers colorfully told P&PW that the announced $70-75 linerboard increases were “ludicrous” and “a joke,” and another claimed to be “perplexed.”
“It seems oddly timed,” said one national buyer of boxes. “My guess is that they are trying to influence the market from further declines. Nothing would indicate that the market is tight. If anything, it’s heavy on supply, weak on demand. Not to mention that PCA recently announced that they’re bringing their Wallula, WA, mill back. And Pratt’s Henderson mill (is) starting up within weeks.”
A total of 2.3 million tons of additional recycled containerboard capacity started in five machine projects in the first 11 months of this year. IP and WestRock primarily and several other companies responded in the last year by permanently closing containerboard capacity, which equals about 70% of the 2.3 million tons of additional capacity, according to P&PW research.
One box buyer in the East said the increases were to “stave off further decline” in linerboard prices and “they probably saw that more declines (were coming) in January.”
“I’m confused,” a linerboard supplier admitted.
“They’re losing money on boxes now?” the contact seemed to question out loud.
Either way, Wall Street contacts said the key for the integrated producers was to avoid any further price decline for linerboard.
The No. 1 goal is “’you can’t lose any more price,’” exclaimed the Wall Streeter.
“It’s a weird time,” a mid-sized integrated producer said, and “I wonder with box contracts negotiated (at) yearend and you’re now trying to implement a (price) increase in a soft demand backdrop, do guys really jockey for share?”
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