March 20, 2023
This article contains some pertinent highlights from the two recent conferences hosted by Fastmarkets: RISI and Pulp and Paper Week. We were honored to present on behalf of
our industry and the independents. We have attended and delivered favorable messages on your behalf in 15 out of the 22 annual gatherings. In addition, we participate in a yearly Bank of America conference. The overriding theme throughout all of the presentations and conferences was based on how we are to live with and endure new uncertainties.
We are also often asked for our sources of information. Here are the basics:
- Scoring Boxes (monthly)
- BoxScore (bimonthly)
- Annual meetings
- Summit meetings
- National Association of Manufacturers
- Pulp and Paper Week
- Bank of America
- KeyBank
- Bank of Montreal
- Deutsche Bank
- American Forest & Paper Association public statistics (usually quarterly since 2022)
- Fibre Box Association public statistics (usually quarterly since 2022)
Capacity Changes
Internally, we track containerboard and boxboard capacity changes. Recently, we removed 550,000 tons of linerboard from WestRock because of machine closures and the shift in uncoated recycled boxboard to Sonoco and Ox Industries. We also follow the movements in other folding carton grades.
Transportation
A slowing global economy, inflation, and reduced consumer spending have decreased ocean container shipments. Costs have decreased, except movements between the U.S. East Coast and the European Union. Trans-Pacific rates are down almost 75% from a year ago. Also, ocean container capacity is increasing and expected to rise 8.8% this year.
Problems with the Rhine River in Germany, much like our own watershed with the Mississippi River, have caused distribution challenges with materials that move by barge. A panel discussion moderated by Adam Josephson of KeyBanc Capital Markets stated there has been no backup of cargo ships at our ports since May, and there has been a 40% drop in outbound loadings.
Craig Fuller of FreightWaves said ocean rates between the U.S. East Coast and the European Union remain high. Ocean freight is dominated by a few players, and volatility always exists. New ships are being built. No one can forecast global demand. Port warehouses have been clogged. Railroad cars are expected to retire at the rate of 10,000 a year, and new rolling stock can be added at the rate of only 5,000 a year.
Macroeconomic Outlooks
There will be a drop in purchasing power, which historically has been shown to continue long after corrections in inflation rates via the Federal Reserve interest rate movements.
Even with reported “low” unemployment rates, labor supply shortages, energy disruptions, money supply, distribution logistics, government stimulus, interest rates, food shortages, shifts back from accumulating durable and nondurable goods to services like going out to eat, inventory corrections, dollar strength, global trade disruptions, and reshoring movements are unknowns.
Global economic growth has stalled. The U.S. still appears somewhat positive in 2023, with maybe a 2.2% increase in 2024.
North American Containerboard
Manufacturing sales are good for converters, but drought conditions are creating challenges in domestic agriculture. When will inflation come under some control? The Fed raised the discount rate in December. Expect some containerboard capacity reductions, especially in high-cost kraft-based machines. We need a 3% average annual growth rate in corrugated shipments to consume all of the new containerboard coming on stream. It may be the year 2025 before a new balance is achieved.
Cost inflation has offset actual rapid containerboard price increases of the past few years.
It was said European mills can exist only with fossil fuels and may take 10 years to make the switch to other sources such as biomass.
AICC can provide some slides if you request them and can assist you in communications with your suppliers
and customers.
Ralph Young is the principal of Alternative Paper Solutions and is AICC’s technical advisor. Contact Ralph directly about technical that impact our industry at askralph@AICCbox.org.
