Containerboard Producers Face Challenging 2nd Half of 2011

June 7, 2011 - Is the economy slowing? The 6.9-point month/month drop in the ISM index was a huge warning shot for containerboard/box producers, say analysts at Deutsche Bank.

Meanwhile, competitive pricing and rising input costs suggest that the second half of 2011 will be tougher than expected, DB warns.

"PPW (Pulp & Paper Week) has reported transaction prices flat at $635-645/ton in May. However, we believe open market containerboard prices are sloppier," said Mark Wilde, senior anaylast at DB who covers the paper and forest products sector. "Box prices are down about $15-30/ton since the start of the year," he added.

Last week, RockTenn announced the closure of three of recently acquired Smurfit-Stone Container's box plants.The big issue, DB pointed out, is mill capacity, and DB said that it expects RockTenn to eventually close 2-3 SSCC mills.

Bleached Board - SBS
Discussion with numerous trade players suggest that this market is softer than reported, DB noted. Producers have announced $40-50/ton price hike on SBS, effective late-May/early-June.

"Demand is OK," Wilde said, "but not as strong as last year. In May, SBS estimated prices were flat at $1,130-1,180/ton (+8.5% y/y). Based on numerous trade discussions, it appears that the market is transacting well below these levels."

Old Corrugated Containers (OCC)
DB said OCC to China is holding firm at $195-210/ton FOB in June. Key drivers are lower OCC generation in the U.S., strong export demand and expectation of higher OCC demand from the start-up of several new machines in China in the coming months.

"Demand is a bit soft in both the domestic markets and in China," Wilde said. "In May, domestic OCC prices were essentially flat, down $1/ton to $155/ton."

SOURCE: Deutsche Bank (Dr. Paper's Pulse on Pricing)