Corrugated Cardboard: Box Prices Increasing as Domestic Demand is Pressured
In the U.S. and Canada, the corrugated industry contributes $24.7 billion to the economies. Its primary end-use is in the packaging industry. Historical performance of the corrugated products industry has followed the performance of the broader manufacturing economy. Since the decline in shipments during the economic slump of 2001, the paperboard and packaging industry has been rebounding until the negative news in December that box shipments declined 6.6%. This is unwelcome news in an industry where pulp prices are increasing steeply, contributing to increased product costs that paper producers are attempting to pass on to customers.
AccuVal has broad experience in the paper industry, from pulp mills to paper and tissue mills to paper converting operations of all types. We have helped Paper Producers complete successful mergers and acquisitions, secure billions in financing, improve risk management, avoid fraudulent transactions and optimize assets. Our experts closely monitor economic trends in the market and drill deeply into the details of every operation so that all appraisal, consulting, and asset management services benefit from a thorough understanding of current market conditions and industry trends. Read how AccuVal helped find a buyer for a distressed mill, saved jobs and averted environmental liabilities here. To view a representative list of clients in the Paper Industry, click here!
Pulp & OCC pricing
Corrugated cardboard manufacturers are facing steep input pricing pressure as the price of pulp skyrockets. Prices have been steadily increasing since the end of 2005. Most recently, the corrugated industry has been directly affected by a $50/ton price increase for containerboard, which took effect in March 2008. Pulp prices have been on the rise in large part because of soaring energy prices. The corrugated industry also relies heavily on old corrugated cardboard (OCC) which is recycled. This, too, is averaging at prices not seen since 2002. And, manufacturers are passing the increased costs of these packaging materials to industrial users who in-turn raise prices charged consumers. Several major manufacturers have announced 10-12% price increases on corrugated boxes and sheets.
SUPPLY
Mill productivity stable and productivity high
Containerboard mills operated at an average on 97.4% in 2007 with a small gain in output. U.S. containerboard production rose 0.3% last year. In the corrugating industry, advancements in technology have resulted in the purchase of bigger and faster machines. As a result of these investments, manufacturers are now able to produce at the same rate with less machinery.
DEMAND
Shipments expected to decline
Much of the industry's growth in profitability and output during the last 15 years was driven by increased corrugated packaging used in industrial processes and shipping. Now that same factor is beginning to have the opposite effect. As manufacturing in the U.S. downturns, demand for packaging will decline. Looking at the indicators, it is becoming evident that the looming recession is having an effect on the manufacturing sector. The Purchasing Managers' Index (PMI) dropped 2.4% in February to 48.3% indicating an increased concern for manufacturing. The overall economy is continuing to grow but at a slower rate.
Retail sales decline
In light of the looming U.S. recession, overall consumer spending is expected to continue to decline, directly impacting the amount of goods shipped, packaged, and sold. The Conference Board announced that consumer confidence fell sharply in February to its lowest level in almost 15 years (with the exception of the Iraq war). Concerns about unemployment, increasing gas prices and a lack of available credit are fueling concerns. As Americans tighten their belts, it is expected that the decline in retail sales will directly affect the demand for corrugated products.
Recyclability preferred
It is expected that the corrugated industry will benefit from the shift in interest to sustainable packaging. Approximately three-quarters of corrugated boxes are recovered and recycled. In fact, it is the most recycled packaging material. In June of 2007, Smurfit-Stone Container announced that its corrugated container plants had earned the Sustainable Forestry Initiative Inc.'s Certified Sourcing Label. To earn the certification, the sources of the firm's raw materials were examined and rated.
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