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A Reflection Heading Into 2019

By AICC Staff

December 5, 2018

It’s been our practice in these bimonthly communications to share what happens in the national meetings, webinars, seminars, summits, and attendance at technical committees where we represent you as members and associates. We continue with the well-attended and well-received Corrugated Packaging Fundamentals seminars as they move them around the four corners of the country to a location close to you. There is a constant daily review of global news articles that may have an impact on the independent’s space. We review news feeds from industry newsletters and follow six security analysts to measure the pulse of the industry.

To keep our regular readers—and new ones—current on the history of these technical articles, yearly updates of the last six submissions will now be published. In the past, these bibliographies were run once about every three years.

  • “Combining Really Low Basis Weight Boards”
  • “The European Invasion”
  • “Fluted vs. Paperboard,” with its excellent summation of highlights from the extensive breakout session at the 2018 Spring Meeting.
  • “Substrates”
  • “Summer Reading List,” which includes mention of the Packaging School module on Warp: Its Cause and Remedies, and the white papers on both score cracking and microfluted and paperboard.

Economic Update

Economic reports from AICC are prepared twice a year to present to the Chemical Packaging Committee of the Institute of Packaging Professionals. As active members in this group, we participate in the health of the organization on your behalf. This is the hazmat gathering where our AICC network is expanded and the Association’s knowledge increases.

  • Don’t miss the midmonth industry-​focused four-page economic report, Scoring Boxes, from Richard Storat and Associates.
  • The domestic economy continues along at a positive pace, but the inflation rate has risen to 2.9 percent.
  • Some believe that the momentum in paper-based packaging demand may have peaked, yet it remains very high.
  • The demand for beverage cans is down 4 percent YTD. CPG food demand continues to lose ground.
  • Industrial production is up to 2.8 percent YTD. China’s industrial production is up 6.1 percent year over year.
  • While we look to the Institute for Supply Management Index as a coincident indicator of box shipments, it has an R2 value of only 0.62.
  • Other than Social Security, China remains the largest owner of U.S. debt.
  • E-commerce continues to outpace all other elements of the economy and grows at an estimated 15 percent AAGR. This has a very positive impact on corrugated shipments.
  • The U.S. stock market is up 5.4 percent YTD at the time of this printing.
  • WTI crude is up from $60 to $70 per barrel this year.
  • Former newsprint mills and coated-​paper mills, some at very low costs, continue to be converted by nontraditional suppliers and focused on the lightest basis weight. Conversion to linerboard and not medium is the design, as the former has higher returns. The quality of final products is uncertain at this time.
  • Security analysts who follow our industry still focus on tons and not the downward shift to use of more recovered fiber, waste paper, and lighter constructions of corrugated packaging. This phenomenon is occurring largely in Eastern Canada and the U.S. Northeast and Upper Midwest. Even with downward movements of less fiber, we see an increase yield in box production of 6–7 percent, so tons have become irrelevant.
  • Monetary returns, as measured by EBITA, have never been higher.
  • Exports of containerboard remain steady at 13.2 percent of domestic production, but margins are thinner.
  • Housing starts remain positive, but at a slow growth rate.
  • Roll stock inventories of containerboard remain stable at four weeks of supply.
  • The mill operating rate was at 97.2 percent of capacity.
  • Boxboard production, the sister business to containerboard and corrugated, sees shipments at a steady pace. Several old mills have closed.
  • Headwinds:
    • China reduced purchases of OCC and has now added a 25 percent tariff.
    • China containerboard manufacturing is moving to other countries, and they have made three investments here in the U.S.
    • China’s stock market is down 25 percent this year and is highly overleveraged.
    • China is still subsidizing countries such as Pakistan, North Korea, and now African countries, with no chance of being repaid.
    • Russian exports of gas and oil constitute 52 percent of their GNP. Per capita income has dropped 13 percent this year.
  • Digital printing impact on older technologies:
    • Consolidations continue recently with WestRock and KapStone, with independents holding on to about 20 percent of box shipments.
    • Transportation costs have almost doubled, and there is a shortage of truck drivers.
    • There are now six other nations that have ownership positions in domestic containerboard operations.
    • Trump puts economic pressure on the European Union, Mexico, Canada, and Japan.
    • 3Q18 GNP up 3.5 percent.
    • One-third of global retail leaders admit that the packages they ship worldwide are at least double the size of the actual product inside.

PortraitRalph Young is the principal of Alternative Paper Solutions and is AICC’s corrugated technical advisor. Contact Ralph directly about technical that impact our industry at askralph@aiccbox.org.