Containerboard Industry Perspective 2nd Quarter 2015

Are containerboard prices about to fall?

By Jesse Marzouk

Potential domestic oversupply, global competition, and other external factors threaten containerboard prices moving into the back half of the year.

A slight weakness in the containerboard market began to appear in the second quarter of 2015. On the West Coast,  prices of unbleached kraft liner-board fell approximately $10 per ton, while prices for semichemical medium fell $20 per ton.  Prices on the East Coast and Midwest have largely held during this period, although new capacity in the fall could impact prices.

While not robust, U.S. box shipments have been relatively strong, with shipments picking up since the fourth quarter of 2014. Year-to-date through May 2015, box shipments are up 2.5% on an average-week basis. This represents an increase over the roughly 1.0% rate experienced in recent years.   

With box shipments relatively strong, the main issue in the containerboard market is centered on supply. Year-to-date through May 2015, container-board mills in the U.S. have operated at 96.6% of capacity. This has resulted in inventories becoming bloated compared to those in prior years. In each month from February through May, containerboard inventories at mills and box plants remained at the highest levels on both an absolute tonnage basis and the number of weeks of supply. Considering the additional capacity coming online in the third and fourth quarters of 2015, some industry insiders are expecting wholesale price decreases in the containerboard market.

The saving grace for U.S. containerboard mills has been the export market. Year-to-date through May 2015, linerboard mills increased export produc-tion by 6.7%. This comes even amid a strengthening U.S. dollar.  U.S. mills are no longer the lowest cost producers in the world, however, given a number of factors. The strength of the U.S. dollar has allowed mills in Russia, Brazil, and Australia to reap the benefits of weakening currencies when selling into the global market.  Decreases in energy prices and declining prices for old corrugated containers, which are used more heavily as a fiber source globally, also have improved the cost position of global producers. This could indicate declining prices for containerboard inter-nationally and, therefore, a more difficult situation for U.S. producers.

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.