Current Conditions for U.S. Corrugated Box and Containerboard
U.S. corrugated box shipments increased to 30.9 billion square feet (BSF) in October, after adjusting the data for seasonality and working days. This was the highest monthly figure in two years. Shipments were roughly 3 percent higher than the year-ago level for the second consecutive month, a remarkable achievement since “flat” was the word used most often to describe the box market during the first eight months of the year. Cumulative shipments through October were 0.6 percent higher than the year-ago level.
Cumulative true consumption of containerboard at corrugated box plants (aka cutup) was 1.3 percent higher than the year-ago level at the end of October. This continues to suggest that the strongest growth in the market this year has been in segments that are not being properly reflected in the box shipment data, such as displays or sheets that are being shipped to non-standard converting plants rather than being made into traditional boxes. Cutup recorded its worst performance of the year in August, but has been more than 3 percent higher than the year-ago level during the last two months. This performance was fairly well in line with the overall growth in industrial production of nondurable goods, indicating that the recent growth in cutup is being supported by some true strengthening in demand.
Total containerboard inventories at box plants and mills remained close to 2.4 million tons in October, which was virtually the same level as in September, despite mill operating rates increasing from 95 to 96 percent. Inventories slipped to 4.2 weeks of supply by the end of October, indicating that the market is more solidly in the balanced range than was the case back in August. Prices in the domestic market remained stable during November, although reports indicate that scattered discounts remain available for recycled liner, recycled medium and even semi-chemical medium. However, the containerboard market is entering the traditional period of weak seasonality, so it is likely that the threat of discounts will remain in place into the spring if normal demand patterns emerge during the next few months.
Current Conditions for U.S. Boxboard
It has been difficult to get a handle on true conditions in the folding cartonboard market during the last 12 months, given the diverging trends between apparent consumption of the cartonboard grades and production of processed foods. Apparent consumption of folding cartonboard was well below the year-ago levels in late 2013 and early 2014, despite the solid performance in the processed foods markets. Apparent consumption then rallied during the middle of the year, despite the softness that developed in the food markets during the summer months. Contradictory patterns such as this suggest that some significant inventory shifts are underway in this market, with inventory levels falling too sharply in late 2013 and early 2014, but then shooting up too far during the second and third quarters of this year.
Excess inventories could help explain why the closure of the Fusion Paperboard mill has had no apparent impact on the coated recycled boxboard data during the last two months, even though the mill represented 6 percent of North American capacity to produce this grade. These ample inventories were likely a buffer for the shift in orders that came about following the closure, especially considering the declining output levels in segments of the processed food markets such as milled grain products during this period. However, this buffer will eventually be used up, setting the stage for a rapid tightening in the market during a relatively brief period. This is the main factor that feeds into our forecast of a swift increase coated recycled prices during the middle of 2015.
Prices for the three different folding carton grades have been flat since April 2014, even though bleached board producers unsuccessfully attempted to implement a price increase in September and October. The downturn in folding cartonboard demand from July to October was the main reason this increase failed, since this was generating some discounting pressure in the spot markets. In addition, unmade orders of bleached board continued to erode during this period, falling from the record setting peak of 6.5 weeks of production in September 2013 to 4.6-4.7 weeks of production in September and October. While this is still higher than the historical norm for the market, some reports indicate that this is because backorders of extrusion coated board remain quite high and that order files for the folding carton grades of SBS are much shorter. We do not have any hard data that can help determine the accuracy of these reports, but the ability of SBS producers to achieve a $20 per ton increase for the cupstock grades indicates that the cupstock market is tighter than the folding cartonboard market.