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AICC Member Comments Predict RISI’s Report

By Michael D'Angelo

June 1, 2018

In its March 23 edition, RISI’s Price Watch moved the price of container​board up $50 per ton following announcements in February from all the major linerboard and medium producers. AICC members, responding to a market-​conditions survey in mid-February, confirmed then what RISI is now reporting: Softer business conditions will mean an increase in box prices will be very difficult for customers to absorb, given the three successive increases imposed by the producers in the past 18 months.

width=400AICC’s market conditions survey, one in a series of our regular “Chair’s check-ins,” was conducted February 16 through March 15. Forty-five members responded, representing just over 20 percent of our general member corporate entities. The survey asked a quick eight questions covering business conditions, the then-announced increase, and the acquisition of KapStone by WestRock. In the following summary, we’ll compare what RISI is saying about current conditions and what you, AICC’s members, accurately predicted.

On business conditions: AICC members reported that business conditions in January and February softened considerably following their peak in the November–December Christmas season rush. Comments such as “business slowed in January,” and “box demand was significantly higher in November–December 2017,” were received from members. But members reported being busier in the early part of the year, too. “November and December were average, but January was very good,” said one. In this mixed bag of results, 44 percent said business in the past 60 days exceeded industry reports, 33 percent said their business matched industry reports, and 22 percent said business was below industry reports. RISI’s March 23 report confirms what AICC members report, quoting a converter as saying, “Box demand softened up significantly coming off the Amazon-driven Christmas cyclical peak.”

Operating rates and paper supply: AICC’s survey asked members about reported high-mill operating rates and whether members were experiencing any tightness in their regular paper supply chain. This question was asked because “high-mill operating rates” has been used frequently in this current price-increase cycle, implying an impending shortage of paper. By an overwhelming margin—71 percent—members reported no tightness in their markets. Among corrugators,

7 percent said they were experiencing some tightness in linerboard and 13 percent in medium. “We’ve been pushed back some on delivery times from our mill partners,” reported one member. “We are getting everything, but not always in a timely manner.”

Fast-forward to March 23, and in RISI’s report, we read an ominous heading: “Growing tightness ahead?” RISI maintains that the market is “likely to grow tighter in April and May” due to seasonal increase in demand. Mills are taking more downtime, RISI reported, for maintenance. Still, is the threatened tightness in the market a reality, or merely a rationale for its $50 move? In the same article, RISI says, “Most independents currently report ‘no ’ with ordering enough paper.”

Box announcements? AICC’s check-in survey noted that while all producers had announced $50 per ton in containerboard increases, only IP and Cascades (at that time) had announced increases in box and sheet prices. (Since then, Georgia-Pacific announced price increases of 10 percent on boxes and 12 percent on sheets.) We asked members whether producers had announced in their market areas, and 75 percent said no. Referring to box price increases on the part of the integrated producers, RISI’s March 23 issue asks: “How much resolve on box hike?” The article says, “While many sellers regarded the $50 per ton containerboard price hike as a ‘slam dunk’ and ‘done deal,’ the coming box and sheet price hike to pass through the higher paper costs is expected to be more of a challenge.” AICC members, in the survey results collected in the previous 30 days, predicted this. As of mid-March, one member wrote, “We have four major integrated plants in our market. Not one has announced or is even mentioning an increase in box prices.”

RISI’s article confirms what many AICC members predicted in the February check-in survey: The containerboard producers, intent on pushing through an increase, have used a weak rationale and are, it appears, failing to implement any pass-through in the box market.

For more information, read the results of AICC’s February check-in survey at https://tinyurl.com/aiccfeb18check. Visit https://tinyurl.com/aicccontcom to read a commentary on the containerboard increase, published by AICC in February.