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IP Wants Yet More for Board

Late last month International Paper (IP), North America’s largest containerboard producer with a 29 percent market share, informed its customers that it will be raising containerboard prices by $60 per ton on Oct. 1. Thirty days ago integrated board producers successfully implemented a $55 per ton price increase and (along with their independent colleagues) are currently having little trouble getting box buyers to pay anywhere from 7 to 11 percent more for finished boxes. Another price increase attempt so soon took many industry participants by surprise, even though they understand IP’s thinking.

IP’s letter cites strong operating rates, lean inventories, and unprecedented input costs, reports Mark Wilde, paper industry analyst for Deutsche Bank, New York City, in an email to clients.

“This notice makes clear IP’s determination both to play the role of market leader and to improve financial returns in the business,” he writes. “Will it work? While operating rates and inventories remain lean, we think IP may still have to show discipline on the supply side to insure success on this hike. With its 560,000 ton per year (tpy) Vicksburg, Miss., linerboard mill due to restart in November and Pratt Industries due to start up a new 350,000 tpy recycled linerboard mill in Shreveport, La., just a short time later, some offsetting supply moves may be needed.”

Wilde suspects that the second and third largest players, Smurfit-Stone Container Corp. and Georgia-Pacific, will likely waste little time in making similar announcements. As of press time this had not occurred. He adds that the biggest issue now could be forcing the hike through when finished box production is stagnant.

“U.S. producer inventories of containerboard at the end of July were at their lowest level in tons since 1980,” says Chip Dillon, paper industry analyst, Citi, New York City. “Since then, it appears that at least 30,000 tons of production were lost to Hurricane Gustav. Given this tightness, IP’s move has merit, at least until new capacity arrives.”

However, he adds that with the recent 10 percent increase (versus the euro) in the dollar, coupled with softness in recycled board pricing in the first half, overseas conditions may be loose enough to prevent this attempted increase from succeeding.

“At current valuations, the market seems to us to have already ‘decided’ that IP’s move not only will not succeed, but that containerboard prices are about to head down,” he states.

Finished Box Price Activity--

Turning to finished box price increase activity, Joshua Zaret, Longbow Research paper industry analyst, conducted a corrugated packaging survey last month that showed producers are getting anywhere from 7 to 11 percent more for their boxes.

“Although box demand continues to be weak, with shipments down 2.4 percent year to date on an average week basis, containerboard supply continues to be tight, and appears to be the controlling factor in the price equation,” he writes in an email.