The ITB Insider

Containerboard Price Hikes and the Future of Box Profitability

The recent surge in containerboard prices has sent ripples through the packaging industry. While some major integrated producers (companies that manufacture both containerboard and boxes) have attempted to translate these increases into higher box prices, recent industry reports indicate they’ve faced challenges.

Here’s a breakdown of the situation:

• Margin Compression: International Paper, Smurfit WestRock, and Packaging Corp. of America have struggled to turn containerboard hikes into higher box prices. This is partly due to a past focus on volume over profitability at their box plants.
• Shifting Strategies: With new leadership at Smurfit WestRock and International Paper prioritizing “value over volume,” these giants may move away from the previous strategy of prioritizing paper production over box profitability.
• Independent Box Makers Feeling the Pinch: Unlike integrated producers who control the entire process, independent box makers who buy containerboard face a different reality. The recent $40 per ton increase translates to a 6.5% cost bump, which can quickly erode profits if they can’t pass it on to customers with existing contracts limiting price adjustments.
• The Contract Conundrum: With 65% of box purchases made through contracts, the current system for mid-contract price adjustments may not be sustainable. Green Markets Box Report suggests a potential need to revise how and when these adjustments occur.

The industry faces a precarious situation:

• Price Increases and Market Stabilization: The success of the recent containerboard price hike hinges on customers accepting higher box prices. If supply and demand fail to find equilibrium, it could lead to a downward pressure on box prices, potentially delaying future containerboard price increases.
• Demand Concerns: Despite e-commerce and packaged-food sectors offering some bright spots, overall demand remains sluggish. Not all e-commerce players have the high volume of companies like Amazon, making it difficult for box makers to rely solely on this segment.

Looking Ahead: The industry is at a crossroads. Buyers and sellers may need to find new ways to navigate price fluctuations within contracts. Without a more balanced approach, the current market dynamics could force some independent box makers out of business, impacting overall industry stability. It remains to be seen if the recent containerboard price hikes will ultimately translate to a more sustainable long-term profit picture for the box-making sector.

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