Container Board Producers announce Price Increase

From - Deutsche Bank - Equity Research


Smurfit-Stone, the world's largest containerboard producer, began notifying customers on Monday of a $40/ton hike on all
containerboard grades (kraft linerboard, corrugating medium, and white-top linerboard). The hike is effective on August 1. The initiative essentially mirrors an earlier announcement by Weyerhaeuser (NA's #2 producer). The only difference is that Weyerhaeuser is proposing an extra $10/ton on the West Coast, presumably to offset higher wood costs. Weyerhaeuser and Smurfit control nearly 40% of North American containerboard supply. We expect other producers to follow.
Producers in Europe are also announcing price hikes. Over the past few business days, both Smurfit-Kappa (Europe's largest player) and PowerFlute have announced Euro50/mton (equivalent to about $61/ton) price hike on semi-chemical corrugating medium. PowerFlute's hike is scheduled for July 1, Smurfit-Kappa's for August 1.
Price hikes earlier this year fell flat in the face of weak downstream demand for corrugated boxes. The current initiative may
get more traction if the recent rebound in the ISM's manufacturing index translates to stronger industrial production and a corresponding uptick in box volumes. June's 56.0 reading is up sharply from January's 49.3 low. Historically, an ISM reading in the mid-50's is indicative of healthy box markets. Other critical variables include the state of global demand (currently, this appears healthy) and pressure from input costs. On the latter count, after some Q2 easing, global wastepaper markets are again surging. An increase in costs for old corrugated containers (OCC) and other wastepaper grades will boost variable production costs for recycled containerboard mills around the world.