AICC President, Steve Young, Comments on 3.23.18 RISI Increase
Monday, March 26, 2018
Posted by: Alyce Ryan
Here’s what you said
AICC Members’ comments predict RISI’s report: Business generally softer, crickets on boxes
It its March 23 edition, RISI’s Price Watch moved the price of containerboard up $50/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: that softer business conditions will mean an increase in box prices will be very difficult for customers to absorb given the three successive increases which were imposed by the producers in the past 18 months.
AICC’s market conditions survey, one in a series of our regular “Chairman’s Check-ins,” received confidential responses from over 20% of the general member
s. The survey asked 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 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 also 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% said business in the past 60 days exceeded industry reports, 33% said their business matched industry reports, and 22% 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 cited as a justification in this current price increase cycle; implying an impending shortage of paper. By an overwhelming margin – 71% -- survey respondents reported no tightness in their markets. Among corrugators, seven percent said they were experiencing some tightness in linerboard, and 13% in medium. “We’ve been pushed back some on delivery times from our mill partners,” reported on member. “We are getting everything, but not always in a timely manner.”
Fast forward to March 23, in RISI’s report, when 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 rational for its $50 move? In the same article, RISI says, “most independents currently report ‘no issues’ with ordering enough paper.
Box announcements? AICC’s check-in survey noted that while all producers had announced $50/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% on box prices and 12% on sheet prices.) We asked survey respondents whether producers had announced in their market areas and 75% 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 said, “while many sellers regarded the $50/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 may present a challenge; survey respondents predicted this. As of just two weeks ago, one respondent 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 that the containerboard producers, intent on pushing through an increase, have used 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 here. Click here to read a commentary on the containerboard increase published by AICC in February.
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