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Over the last eight months, contacts have been fairly optimistic that the North American boxboard market would pick back up by the second or third quarter this year following supply chain issues around surplus inventories and destocking, which began last year.
As the year has gone on, it has become clearer that there is pressure on a lack of demand for some paperboard grades. This year, uncoated recycled folding boxboard (URB), coated unbleached kraft board (CUK) and solid bleached sulfate board (SBS) folding carton paperboard have all seen their prices drop.
Industry contacts seem to think that coated recycled board (CRB) is safe from a price movement down because producers could simply take tonnage out of the market to keep it balanced, buyers have told Fastmarkets’ PPI Pulp & Paper Week various times this year. However, one contact told P&PW on Aug. 17 that if demand continues to be slow, it will be difficult to hold CRB pricing. Another contact earlier this year even pinpointed several different CRB machines that could, for all intents and purposes, be quickly closed down by producers because of falling prices.
One analyst told P&PW that “it’s more expensive to give up price vs a small amount of tonnage, until you have to give up a lot of tonnage, then it may be worth (it) to give up the price.”
“We’ll have to wait and see what happens in September,” another contact said.
Another factor in the market, on the demand side, is that it has become more difficult to predict consumer buying patterns.
“What I always refer to as the center of the grocery store, which is kind of where we on the packaging side live, in terms of boxboard and SBS, all those grades … that business through Covid-19 was busy-busy-busy. It’s really died off,” a contact said.
“The initial analysis was that it was just kind of a resizing, and that people may have actually overstocked their cupboards/freezers with these things and that they are bringing inventories down, but you can’t look at that by itself. What we are seeing is people are still eating out like crazy and that is not what is supposed to be going on when the economy is doing what it’s doing with inflation and everything else,” the contact noted.
The contact said that historically people moved away from eating out as soon as the US economic environment changed negatively.
“If they ate out once a week, they adjusted to once every two weeks. There’s no slowing at all with people eating out,” the contact noted.
Fast food restaurants appear to be doing well at maintaining their prices somewhat and in a different pattern than at grocery stores, so people are still choosing McDonald’s, Burger King, Chick-Fil-A, and Taco Bell, a contact told P&PW.
In one example in San Francisco, a loaf of wheat bread now sells for about $5 at most grocers. In February 2020, it sold for less than $2 a loaf.
The grocery store inflation is massive. I think it has created a kind of shock. Maybe even a perception that eating out isn’t necessarily more expensive.
Consumer behavior in the grocery store also appears to be shifting in terms of the younger generation gravitating towards the outer part of the grocery store where there is fresh, organic produce.
“They’ve done a lot of studies as to whether the younger generation really looks at grocery store prepared meals as an option. They don’t see it as healthy. It definitely isn’t fresh. There is an emerging pattern there that hasn’t been defined yet. You have this whole readjustment to where we are now and the analysis of where the opportunity is down the road for packaged foods and maybe a way to kind of stimulate it again,” a contact told P&PW.
Last month, another industry contact reminded P&PW that today’s paperboard and folding carton market and its supply and demand condition, is experiencing for the “first time” the “economic effects of the pandemic.”
Still, a lot of uncertainty remains heading into the fourth year after the initial Covid-19 lockdowns in March 2020. “I do think there is a general feel in the market where waiting isn’t necessarily a penalty,” a contact said.
Talks about sustainability are top of mind for a lot of key players in the market. The move from plastic to fiber-based packaging has now started to pick up.
“We’ve continued to see opportunities coming our way on companies wanting to go from plastic to paperboard,” a producer company contact told P&PW. “It’s probably going to take some market share away from virgin board.”
This article was taken from PPI Pulp & Paper Week, our newsletter for pulp, paper and packaging market news and prices for North America. Speak to our team to learn more about our news and market analysis, prices, forecast and more.
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