Questions Abound

At the time of this writing, I was preparing for the Bank of America’s annual Global Agricultural and Materials Conference. And yes, trees are a crop, just with a longer rotation period than corn. Much of the conference had to do with the perfect storm we have been experiencing: major interruptions like delayed and now necessary mill maintenance, the winter disaster in Texas, a lack of trucks and drivers, terrible winter weather in the Midwest and East, containerboard shortages, with PVA adhesives, and unprecedented demands for containerboard and boxes.

During the same week, Deutsche Bank presented a two-day Zoom seminar on the European perspective on environmental, social, and sustainability . What happens on the other side of the pond generally makes its way to this side. Let us know if you want a copy of this public report.

Here are the questions that were asked during the general Bank of America conference:

• Are you surprised by the rebound in the market? Why or why not?
• How did the market get so tight? What was the chain of events that caused this, and how long-lasting do you think it will be?
• How much do you think e-commerce contributed to box growth over the last three quarters? Is it possible to quantify?
• How long-lasting will the e-commerce effect be?
  • We would roughly estimate that the post-COVID bump will be worth one percentage point incremental to existing growth—what would be your estimate?
  • Do you think that new applications of e-commerce, such as grocery delivery, are likely to be more or less corrugated-intensive over time?
• Are we seeing any increased signs of conservation and box fatigue?
  • There was a recent comment on the news wires about a business startup that will bundle consumers’ e-commerce deliveries in reusable totes (Olive). Do you think consumers would be willing to wait to have their products bundled? Would that even cut down on corrugated? (It seems that the bundling operations would be the ones collecting and reselling the corrugated.)
• How important are China, Mexico, Brazil, and Europe to the U.S. containerboard market?
  • Do you expect China will be importing kraft liner to offset lost OCC/RCP?
  • Can Eukaliner® from Klabin compete?
• Are current prices so attractive that supply will be attracted to the market at an accelerated rate?
• Why can the industry never seem to sustain prosperity? You get one or two good quarters, but then the “dog eats the homework” somehow—there’s inflation, a mill goes down, logistics get screwed up, etc.
  • What does the industry need to do differently, if anything?
• Why can’t the containerboard and corrugated industry adopt more of a pass-through model? If the containerboard companies are such good packaging companies, wouldn’t that move the competitive battlefield to areas they are best able to defend?
• What do you think growth will be like in 2021 and 2022? How about globally?
• A few years ago, conversions seemed to be mostly centered in recycled grades, but now the move seems increasingly to virgin conversions. Does that surprise you, given that recycled fiber prices have continued to decline?
• How much more capacity is viably converted from the graphic paper markets in the next three years that hasn’t already been announced to convert?
• How have the costs of conversions evolved over time? What’s the range, in dollars per ton? (Our past analysis places conversions at $300–$400/ton.)
• What are the costs for new recycled PMs? (Would place these projects at $600–$800/ton.)
• What are the typical lead times for equipment? What would be the timeline on a conversion versus a new PM?
• What are the return assumptions in making these new investments? What do you think the price assumptions and EBITDA/ton assumptions are behind the decisions to go forward, as well as for recycled fiber pricing?
• Discuss the move to lower basis weights in North America, and how this is related to the influx of conversions.
• Does North America need a greater amount of lightweight capacity? Why?
• What if any impact does e-commerce have on the demand for lighter basis weights and conversions?
• What effect is the new recycled liner index having on the box market?

If you are seeking the panel’s perspective on any of these questions, contact us.

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.