Containerboard Industry Perspective 1st Quarter 2015

Paperboard prices steady

By Jesse Marzouk

Opposing forces are currently at work in the containerboard market, resulting in flat prices for virgin containerboard and slightly decreasing prices for recycled containerboard. Virgin containerboard prices have held steady as little supply has been added and producers have selectively taken market downtime when necessary to maintain pricing. Prices for recycled containerboard have come under pressure, however, and now sell for discounts of $30 to $40 from virgin prices. This is mainly due to new machines and machine conversions since 2013 creating more supply. Another large new containerboard start and more conversions are planned for 2015. Additionally, declines in pricing over the last year for old corrugated containers (OCC), which is the primary feedstock for recycled containerboard, have allowed producers to maintain margins even with lower prices for recycled containerboard.

When analyzing the containerboard market, an understanding of the global market is essential. Currently, approximately 13% of all containerboard manufactured in the U.S. is exported. In 2014, almost all of the additional supply that entered the market was absorbed by growth in demand from export markets. It remains to be seen, however, how the strength of the U.S. dollar and the weakening of certain economies will impact containerboard prices. Large export markets include Europe, Mexico, and South America. As the euro has weakened significantly against the U.S. dollar since last summer, containerboard prices in euros have begun to rise. The question now becomes whether or not the rising prices will cut into European demand for containerboard. In other large export markets, such as Brazil, demand has declined significantly as the economy struggles under the weight of low commodity prices.

In other paperboard markets, Caraustar Industries’ acquisition of Newark Group was finally given regulatory approval by the Department of Justice (DOJ). Unlike other large deals in the forestry space over the last four years, the DOJ did not require divestiture of any assets of either entity as a condition of its approval of the acquistion. The two largest firms in the uncoated recycled board (URB) market, Caraustar and Sonoco, now control approximately two-thirds of capacity in the U.S. With demand holding relatively stable for URB, it is expected that prices will rise in the coming the year as producers take advantage of the new level of industry concentration and pricing power.

Jesse MarzoukJesse Marzouk is a vice president and forestry products specialist. He has appraised numerous U.S. and Canadian pulp, paper, and lumber-related companies involved in manufacturing and distribution. Jesse received his MBA in finance from Kellogg School of Management at Northwestern University, and has a degree in finance and accounting from Indiana University.