Boxboard market update: post-pandemic demand, capacity changes and cost pressures

Steven Honeyman shares his analysis on boxboard price trend drivers and how capacity is changing in the market

What is happening to the biggest price trend drivers in the boxboard market? We interviewed our senior economist, Steven Honeyman, to find out more about boxboard demand post-pandemic, changes in boxboard capacity and how prices will react to cost pressure.

Watch the video interview or read the summary below.

Has the post-pandemic environment affected boxboard demand?

Prior to the pandemic, there were secular declines following the Great Recession. During the pandemic, we have seen boxboard pick up with spending growth on goods and stocking up on packaged foods. This helped driving boxboard demand, especially for folding cartonboard, during 2020-2021. On the other side, however, food service and cup stock struggled due to restaurant shutdowns and limited capacity.

As we move out of the pandemic, we are continuing to see increased spending in the folding cartonboard markets and the recovery in restaurant spending should be beneficial for cup stock and food service.

How has boxboard capacity been changing and how has this affected the market?

Capacity changes have had a significant effect on the boxboard market. When you look at the past two decades, we have seen capacity decline in the boxboard markets with drops in demand and increased imports. Domestic production has struggled during that period, but it seems to have somewhat bottomed out.

We have started to see some investment to increase efficiency and flexibility. There have been investments into machines that can swing capacity between solid bleached sulfate (SBS) and coated unbleached kraft (CUK) markets, as well as creating more efficient coated recycled board (CRB) capacity.

The net effect of all these changes on the market is that SBS capacity will be down slightly while CUK capacity increases due to the capacity swing machine. On the other hand, the addition of the K2 machines at Kalamazoo, Michigan by Graphic Packaging International, will bring in around 170,000 tonnes of new capacity in the CRB markets.

What do prices and profitability look like with rising cost pressures?

The cost pressures in boxboard production are a big driver of price increases that we have observed over the past year and a half. The significant demand has resulted in a tight market, which has put the pricing power in the hands of the producer and allowed them to pass on the rising costs they have experienced across to the customers.

As we look into the future, we are seeing some easing in these cost pressures. We have started to see some fiber prices come down and transportation starting to ease. However, we are unlikely to see costs fall back to pre-pandemic levels. They are likely to remain elevated and keep the prices at these higher levels.

Although the tight markets presented the potential for profit or margin increases, the costs have been rising so fast that there was little room to include this in the prices. The earnings calls from the biggest producers in the industry have suggested that even though they are raising prices quickly, margins have pretty much stayed flat.

This has started to change in the second quarter of 2022, where costs have been declining and margins have been allowed to grow a little. It is possible that prices will become more inelastic as costs move downward to allow margin gains in the future, but on the other hand, customers that have seen their prices increase quickly will be keen to push for lower prices. If there is any easing in the market in the near future, there will likely be some pressure to pull the prices down.

Global trade tensions could have a major impact on boxboard producers, suppliers and customers. Uncover the future of the market with our paper and packaging forecasts or take a look at our special study on the price, production cost, and grade-specific data and analysis for every market in the Americas.

Case Study

Learn how to monitor packaging prices using cost and price indices and understand the underlying cost drivers, from material cost to labor, energy and more. Examples include cartonboard, liquid container and paper bag.

What to read next
A big question mark for Brazilian containerboard market participants right now is the impact the Rio Grande do Sul floods will have on demand in the country. Although hard to estimate, especially amid reduced gross domestic product (GDP) forecasts, we still believe that the floods will have a somewhat limited impact on the demand for […]
Fastmarkets FOEX would like to thank those who took the time to respond to the consultation. Fastmarkets FOEX did not propose any changes to the methodology. The feedback was fully supportive of the current methodology. To summarize, this open consultation does not lead to material changes in the current methodology. A newly dated methodology document […]
A survey of consumers in the UK and Germany shows that the majority of shoppers are happy to purchase a variety of home and personal care products in cartons made from paperboard, including laundry detergent, fabric softener, and hand soap. According to research commissioned by Elopak and conducted by Absolute Research, 65% of respondents said […]
Prices for locally produced containerboard moved north again in April in the Gulf Cooperation Council (GCC) countries as manufacturers pushed for price hikes for the month or the second quarter. Contacts on the supply side motivated these moves with higher costs for raw materials and logistics, price increases in other regions such as Europe and […]
The Mexican government’s decree, which updated and, in some cases, introduced new import tariffs ranging from 15% to 35% on 21 packaging and paper products, went into effect on Tuesday April 23. According to the decree, the measure, which is valid for all countries, is set to last two years from April 23, therefore, until […]
This consultation, which is open until May 23, 2024, seeks to ensure that our methodologies continue to reflect the physical market under indexation, in compliance with the International Organization of Securities Commissions (IOSCO) Principles for Price Reporting Agencies (PRAs). This includes all elements of our pricing process, our price specifications and publication frequency. Fastmarkets FOEX […]