European cartonboard grades race towards end of historic year

No breathing room, supply chain strains overwhelm box makers with buyer orders

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Buyers and sellers on both the folding boxboard (FBB) and white-lined chipboard (WLC) sides of the cartonboard market appeared enthusiastic for this month’s holidays which will signal an end to a year that time and again players have called “unprecedented,” “crazy,” and “ridiculous.” To date, amid astonishing demand, FBB prices have risen by some Euro 145/tonne since the beginning of the year and WLC has seen rises of some Euro 200-250/tonne, inclusive of energy surcharges which were implemented by producers in the autumn when energy costs peaked. Expectations are for prices of both grades to continue to rise in Q1 of 2022 when long-term validities expire and should be renewed at higher levels. Those with short-term validities will also have to deal with still more price increases effective for deliveries in January.

”No air coming in” FBB market

Demand on the FBB market throughout the autumn months was sustained at high levels as price increases announced earlier in the year were implemented for those on shorter contracts and those with longer validities geared up for negotiation season with producers. Negotiations, by all accounts, went extremely smoothly for producers though the price levels agreed upon for next year tended to be less consistent than those for WLC.

Amid the overwhelming demand, FBB producers restricted order inflow into 2022 and opened it up gingerly because otherwise “customers would not behave,” as one producer put it. “There is no air coming in, and things are extremely hectic,” said another producer. “Brands are starting to get very worried about supply and we are reaching a critical stage, with customers desperate to get confirmation that they will get board,” he added. And new business, he observed, has a “very difficult job” finding board.

One large end-user said that while some producers had eaten up their margin to respect contracts and keep them enforced, “being big is helping less than it used to.” Regarding the often-reported trend that fewer and fewer producers are offering long-term validities due to the volatility the market has seen this year, he added: “we have been able to find some annual deals, but it has required gymnastics.”

Imports from the Americas and Asia were reportedly trickling in, but not to any substantial extent as freight costs continued to make it economically impossible.

“If they pull out 100% and bring 5% back, [it does not do much],” one major European producer said. “But we would be the first to welcome a relaxation,” he added.

Similarly, one producer said in October that European producers are supplying Middle Eastern and North African buyers because of the pull-out of Asian and American producers. One converter complained bitterly that the Latin American producers that he does business with are extremely unreliable and more concerned with their home markets.

Logistical issues did not plague only imports from abroad in November. There was an anecdotal report of a mill in Finland ready to ship board to its customers but no trucks available to pick it up. Additionally, Brexit-related logistics issues are said to be weighing on imports to the UK again, especially with the complicated COVID-19 testing scheme in the country.

As a result of the convoluted logistical situation, and supply straining to meet demand – not always successfully – lead times throughout the fall stayed at abnormally high levels, with one converter noting that it is “very difficult to live with these ridiculous lead times.”

The show will go on next year

A number of converters speculated that end-users are placing orders with multiple converters, who are in turn each seeking the amount of board needed for a single order from more than one producer. “That is quite dangerous,” one converter said. “Sooner or later, it will create a bubble,” he warned.

Looking forward to January, FBB prices are expected to rise again due to the renewal of long-term contracts. Although FBB producers are facing cost pressure, it is said to be less drastic than on the WLC side. For the most part, the major Scandinavian producers have not had to contend with input costs to the same degree that both WLC and FBB mills on the continent have. This has resulted in the feeling among converters that the increases announced by the FBB giants are predominantly demand-driven. “[FBB producers] were smelling blood and they went for it…[they] will improve their margin,” the end-user said. Another converter summed it up by resignedly saying, “the show will just go on next year.”

WLC players combat disorder

The WLC market saw price increase announcements and energy surcharges throughout the fall, which did nothing to stifle the demand for board, which allowed these increases to be pushed through easily and prompted sellers to look ahead for more. “This industry is not making money,” said one producer. “This is not sustainable,” he added. “Everyone in the industry should have an interest in [board makers] being profitable,” another weighed in.

In September, a producer described customers “screaming to open allocations for 2022.” “Customers are frustrated or have given up,” said another producer, equally tired of fielding inquiries for volumes that his mill simply did not have, about buyers lacking the energy to negotiate new price levels. Across the board, from producers and from buyers, price increases were said to be subject to “very little negotiation,” as one producer put it. “Negotiations are going through like a hot knife through butter,” one disgruntled buyer said.

Still, the situation has been anything but relaxed on the production side. “There is no light at the end of the tunnel, it is as crazy as it [has been all year],” one producer lamented. “There is unbelievable pressure, each and every customer is asking for more volumes, without caring about price,” he added. And, to sum it all up, one producer said that customers are “confused, worried and upset” about the overall situation on the market.

Energy and Baden Board worries

The energy price peaks in October caused, for the most part, a round of energy surcharges in the range of Euro 50-60/tonne to be applied by producers across the continent, especially those in central Europe.

Another concern that weighed on the market throughout the autumn was the fate of troubled German WLC maker Baden Board. The producer, which is expected to begin insolvency proceedings next month, has reportedly been attracting interest from potential investors, although one observer weighed in, saying: “you would need to blast the mill away and rebuild it, preferably somewhere else, if you wanted to make any money.” Others said they were fairly certain that the company would not continue to produce into 2022. However, the consensus is that the 165,000 tonnes/yr that would be taken off the market if Baden Board ceases production, which it has continued thus far, could “tip” the market, with another converter going so far as to say that if the company ceases production for good, it would be a “disaster.” “There is a storm approaching,” said one end-user, summing up the future of the European WLC market.

This article was originally published in PPI Europe, a Fastmarkets forest products subscriber news service.

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