North American box demand still strong as cost, supply-chain pressures seem to worsen

Industry executives say its a 'war' for top talent workers

Market reports this week told of still good, humming demand for both containerboard and corrugated boxes in North America.

Contacts told Fastmarkets RISI’s PPI Pulp & Paper Week about steady to “robust” demand, and they saw no end in sight to supply chain issues, especially with a lack of truckers and high rates nationally.

International Paper’s (IP) top executive Mark Sutton publicly told a conference group this week that demand was “very strong,” based on comments from box customers, and Sutton also reported that the company’s input costs continued to rise. He said IP’s natural gas and wood chip costs were even higher today than what company executives expected they would be at the end of October in an earnings call with analysts.

With diesel fuel costing 50% more than it did a year ago, several leaders told P&PW that they were using “whatever we can get” to transport their board and boxes to the marketplace.

They also told of ongoing problems to hire enough workers to run corrugators and make enough boxes to keep pace with demand.

At the Citi Basic Material Conference this week, IP CEO Sutton said of IP’s large board-to-box system: “The challenge right now is meeting that (box) demand. Meeting it is choppy.”

‘Absolute war for talent out there.’
Sutton said adding labor to increase box output has been difficult, even with IP offering signing bonuses and “retention” bonuses. He said corrugated box plants along with light manufacturing and “sophisticated” warehousing businesses, which he said pay similar wages, are all together in an “absolute war for talent out there.”

Sutton said IP employees are “happy to do” overtime “for a while.” But he said IP has found it “really difficult to hire, train, and retain” new workers at its converting plants, which total about 200 in the USA.

With these strains as well as other factors, there was little to no talk detected from market players this week about another price increase for containerboard in North America’s open market.

So far, three containerboard price increases were implemented in 10 months from November 2020 to August 2021 in what likely was the fastest price run-up ever in US and North American industry history. Linerboard today is at its highest-ever price range (unadjusted for inflation), following the three increases that totaled $160/ton.

There was talk in September of a fourth containerboard increase because of the steady-to-strong demand condition the last 18 months in the US and Canada, but that talk seems to have withered away under the ongoing strain of demand outpacing supply and supply chain delays, and still-rising costs in most cases except for old corrugated containers (OCC).

Fastmarkets RISI’s Dir. for North American Packaging and Paper Derek Mahlburg told P&PW this week that he expects fourth-quarter US actual box shipments to decline 1.3% compared with the very-high fourth-quarter 2020’s 106 billion ft2. He also sees first-quarter 2022 actual box shipments being down, by 0.8%, compared with first-quarter 2021 shipments.

Mahlburg expects a strong second-quarter 2022 – with shipments increasing to 106 billion ft2, like the big fourth-quarter 2020 volume that was fueled by an improved COVID condition nationally from rapid-fire vaccinations and trillions of dollars of federal stimulus funds that were provided to most Americans.

Strongest ever e-commerce month in October
With US consumer price inflation at a 30-yr high, Mahlburg said that “while inflation is weighing on purchases, spending strengthened (including on goods) in October” and October also was the “strongest real e-commerce month ever.”

“Stimulus won’t be around (in 2022 as it was in 2020 and 2021), but there has been a lot of wage growth, at least for lower income workers who spend a bigger portion of their money on stuff (instead of investing), (and) everyone still has big piles of money in their bank accounts from stimulus,” Mahlburg said.

“So the question isn’t really (about the spending level of) consumers. It’s supply chain and how badly manufacturing will remain constrained, especially the nonenergy nondurables,” he said.

“Many inputs will remain expensive,” Mahlburg added, and “energy should come down after winter, at least, and I would guess some materials will be less tight. But trucking will remain expensive for a long time, and wages have to go up in my opinion, which is not really a huge deal at the mill level, but bigger for box plants.”

Mahlburg also noted that the firm North American market supply/demand condition today for containerboard and corrugated boxes means that “there is also no way to absorb any new shocks, which … given the past couple of years, (it) seems like there will be shocks! Imagine if containerboard inventories hadn’t built in third quarter before Prattville.”

IP’s large Prattville, AL, mill had a pulp storage tank break that spewed out pulp on Nov. 6. This was expected to cause IP about a 125,000-ton loss of unbleached kraft linerboard production in the fourth quarter (see related story, p. 6). The shut at Prattville alone could represent as much as 1.7% of US linerboard production in fourth quarter this year, based on a P&PW estimate.

Sutton said the Prattville problem would “undue” some of the containerboard inventory that IP built in third quarter.

With the various market strains in play, containerboard pricing discussions were limited or not happening, related to another domestic increase in the open market in North America. Contacts suggested another increase might be possible in first-quarter 2022 but that notion appears to have now evaporated.

Little price ‘chatter’
A mid-sized integrated added: “I have not heard much on the pricing front. We remain busy, supply still not keeping up with demand, box plants remain constrained. Need to see where inventories end up. Market conditions might favor another increase, but it’s too early to tell.”

“No, there hasn’t been any chatter about trying to raise containerboard prices,” a containerboard supplier said at mid-week. “Inventories are being replenished and labor is still an issue, so output has basically hit the top of where it can realistically go until more people go back to work. Box demand remains quite good, though.”

“I don’t feel any traction for a price increase announcement,” a smaller-sized integrated company official said at the end of this week. “Most box plants are OK with their inventory levels and mill backlogs are more manageable. Box plants are still extremely busy. For sure, a price increase would be driven by increased cost, but if OCC (pricing) goes down fast, it will be tough to justify a price increase.”

US employment increased by 210,000 in November, far below the monthly average growth this year of 555,000, the US Bureau of Labor Statistics reported on December 3. The number of unemployed US persons fell by 542,000 to 6.9 million. The 6.9 million is higher than the amount pre-pandemic of 5.7 million unemployed. Also, the “number of persons not in the labor force who currently want a job was 5.9 million in November, little changed over the month but up by 849,000 since February 2020,” the government reported. November employment in transportation and warehousing increased by 50,000; construction employment increased by 31,000; and manufacturing added 31,000 jobs for the month. US manufacturing employment is down by 253,000 since February 2020, the US government reported.

This article was originally published in PPI Pulp & Paper Week, a Fastmarkets forest products subscriber news service.

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