Containerboard, Box Volume Growth Healthy, But Off 3Q 2010 Peak

June 23, 2011 - Deutsche Bank's (DB) Containerboard Quarterly report said that higher containerboard and box prices drove producer operating income on a year/year basis.

Industry volume growth was modest during the first quarter of 2011, DB said.

"The key issue was supply disruptions from severe weather in February. At the same time, rising input costs for chemicals, energy, freight, and OCC squeezed margins," said Mark Wilde, Senior Analyst at Deutsche Bank covering the Paper & Forest Products sector.

Fundamentals Suggest Sluggish Demand
May box shipments were disappointing, DB said. The recent 6.9-point drop in the ISM index suggests a broader easing in the economy.

"Our recent discussions with the trade suggest subdued volumes," Wilde said. "Looking ahead, while we expect box demand to be flat-to-slightly positive, risks appear skewed to the downside."

Prospects for a Price Hike Have Faded
Discussion of a potential summer price hike has quieted, and May box numbers provide little support for demand-driven hike. At the same time, prospective capacity cuts by RockTenn or others are likely to come too late to help drive an autumn price hike, DB pointed out.

"We now see little likelihood of a serious 2011 price hike. In the meantime, eroding box prices and higher input costs are chewing into margins," Wilde noted.

SOURCE: Deutsche Bank - Containerboard Quarterly