Omnicron case spikes and transport issues slowing boxmakers

Cascades surprises market with only corrugating medium price increase

Cardboard Box Production In Factory

Box Production In Factory

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North America’s linerboard prices in the open market remained unchanged for the fifth straight month just as a large producer announced a unique, $40 per ton increase for only corrugating medium, effective February 28. Cascades, a large open market seller of medium domestically, announced the increase on January 19.

Contacts said the company might have to stand alone on the increase if a full-blown domestic containerboard price increase appeared. There was market talk late this week that at least two major integrated producers were considering some sort of containerboard price increase in North America.

Contacts said Cascades and some other board producers believe the market pricing differential is too wide between 26-lb semichemical corrugating medium and 42-lb unbleached kraft linerboard. It’s currently $80 per ton, based on Fastmarkets’ PPI Pulp & Paper Week (P&PW) price survey published January 21.

Production costs and pandemic still affecting prices

Contacts cited rising costs for transportation, energy, and chemicals, and they blamed the Omicron variant for causing further worker shortages at box plants this month, which all combined to apparently spur the Cascades price increase and talk of a full-blown one for the domestic North American open market. The contacts also said 30-year-high old corrugated container (OCC) prices last year in North America was another factor, even though US mill pricing for OCC has declined $30 per ton in the last three months. Cascades predominantly makes 100% recycled-content linerboard and medium.

Further, “medium” remains tight in North America, said a national boxmaker contact, who added that supply/demand for corrugating medium is tigher than for the much larger volume grade, linerboard. In 2021, Linerboard represented 69.4% of US containerboard production and corrugating medium 30.6%.

“There’s cost pressure … (and) I think they’re under pressure,” the contact said of Cascades, the No. 6 largest containerboard producer in North America. The contact continued:

Boxmakers have never had this kind of pricing power that they have today.

Omnicron variant strains box plant labor force

Boxmakers across North America said an influx of ill workers since Christmas from the Covid-19 Omicron variant knocked out roughly 5% to 15% of their workforces on any day through this week in January.

In Southern California, one mid-sized box company representative summed up: “Box demand is good – [but] Covid sucks.”

He told of one plant that had to temporarily shut a whole shift. Another pulled back on Saturday work at plants in certain areas hard hit by worker illnesses.

“Backlogs are growing. Lead times are creeping up. The orders keep coming. It is just how much manning can we keep in the building to make the (box). We’ve got to hunker down,” a contact with a company that sells boxes nationally in the USA said.

Trucking costs are increasing significantly

Producer and box plant officials report that their average cost today for transport, primarily trucking, had increased by another 10% to 30% compared with what they paid on average three months ago. Still diesel fuel costs have declined in the last month, after peaking at a 50% higher cost year-over-year several months ago.

“The carriers don’t have availability,” one small containerboard company official said. “Then you go to brokers and they take advantage of you. Some double the rates. Getting someone to commit and pick up loads is the biggest challenge. … Covid is part of the problem in not having people.”

J.B. Hunt Transport Service, the world’s third largest transportation company, this week reported a 26% and $2.5 billion revenue increase for 2021 (from 2020 totals) at $12.17 billion, and a 50.4% increase in net income to $760.8 million. J.B. Hunt’s trucking revenue increased 85% in the fourth quarter.

The worker and transport problems were chief reasons why boxmakers reported four to seven weeks on average for box deliveries in January, P&PW learned. That’s up from four to six weeks in fourth-quarter 2021, P&PW reported.

On the same day that Cascades announced its medium-only price increase, there already, earlier that day, was a report to P&PW of a major integrated larger in capacity than Cascades that was suggesting a possible containerboard price increase to a customer. By January 20, another contact claimed that “they’re talking” about pricing moves – referring to another major integrated larger than Cascades.

Linerboard holds on open market

This month, there were no reports of discounting for linerboard or corrugating medium on the domestic open market in North America, buyers and sellers said, according to Fastmarkets’ P&PW’s survey. US unbleached kraft linerboard and recycled linerboard are now at their highest price levels ever (unadjusted for inflation) after three increases in 10 months totaling $160 per ton in 2020-2021.

Also, export kraft linerboard increased again this month in two of four major markets tracked by Fastmarkets’ P&PW. It increased $10/ton to South/Central America, with the Savannah port FAS price up to $830-840/ton, and increased by 25 Euros per tonne to Italy and Spain in southern Europe, behind domestic linerboard increases.

In checks this week with contacts, Fastmarkets learned that the 23-/26-lb corrugating medium in the open market was mostly $60-75 less in price than 42-lb kraft linerboard.

The Cascades price increase arrived a day after the American Forest & Paper Association (AF&PA) reported that US containerboard mill inventories increased every month in the fourth quarter, to end the year at 494,800 tons, a whopping 43.5% more than spring 2021’s inventory low of 345,000 tons. The December 2021 stock total at mills was up 21% from December 2020’s mill inventory of 409,200 tons.

Mill containerboard inventory is typically about 15% of total mill and box plant inventory. The box plant containerboard inventory is typically 85% of the entire containerboard stock amount. The box plant shipment, consumption, and inventory statistics for fourth-quarter 2021 is expected to be reported by the Fibre Box Association on Feb. 1.

One official with a mid-sized integrated said major integrated mills likely “ran like bats out of hell over the holidays” as box plant volume appeared to drop off compared with solid second- and third-quarter volume, causing containerboard inventory to build at mills.

One Eastern boxmaker said:

We used to worry about the paper (supply reaching the box plant in first-half 2021). Now, it’s a people issue.

It was during the spring of last year and into early summer that P&PW reported corrugated box plants in some cases with only a few days of containerboard on plant floor and a few that even closed for a day or two because of lack of board, and even of some box plant leaders waiting outside the back door for deliveries of linerboard.

One contact expected mill maintenance downtime in the first quarter of about 400,000 tons, which would be 4% of first-quarter containerboard production.

Pratville mill could restart soon, adding market capacity

This said, this estimate included ongoing downtime so far this month at International Paper’s (IP) Prattville, AL, mill. The largest machine at the IP kraft linerboard mill was expected to restart by next week at the 1.12 million tons per yr mill, one contact claimed. A pulp storage tank broke open at the mill in early November. Both machines went down initially, with the smaller one, at about 510,000 tons per yr of capacity, restarted quickly. The largest machine at the mill is the No. 1, with about 610,000 tons per yr of capacity.

An IP official told Fastmarkets’ P&PW on January 21 that “I don’t have an update at this point” about the restart of the large machine at Prattville, “but I believe we will be prepared to provide more comment on our earnings call this Thursday.” IP leaders on January 27 report the company’s fourth-quarter earnings.

US containerboard production grown in 2021 with help of increased capacity

US containerboard production reached a record 40.07 million tons for 2021, which was up by 2.1 million tons and by 5.6% compared with 2020 production. The increase was bolstered by a 1.8-million-ton US containerboard capacity increase in 2021, the AF&PA reported. Capacity reached 42.20 million tons in 2021, from 2020’s 40.38 million tons, the AF&PA reported. Capacity and production increased as US box shipments were on track to their highest two-years-in-a-row actual box shipment performance in 27 years – at about 6% growth in shipments for 2020 and 2021. Box demand shot up in the Covid-influenced economy from second-half 2020 through to today, boxmakers said this week. US containerboard mills operated at 94.5% of capacity in fourth-quarter 2021, down from 95-96% rates in second and third quarter 2021. For full-year 2021, the mill operating rate was 94.9%, which was up from 94.0% in 2020.

A rooftop boiler house fire at ND Paper’s Biron, WI, recycled containerboard mill on January 18 caused no injuries nor stalled board production, ND Paper Communications Dir Brennan Burks told P&PW.

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