May Box Shipments Sluggish, But Inventories Decreasing, Containerboard Production Up

June 19, 2012 - May box shipments were uninspiring, but in-line with expectations, say analysts at Deutsche Bank (DB).

Inventories continued to decline, with the 98.6K ton month/month drop in May at the high-end of our estimates, DB said.

"Despite stagnant box shipments year-to-date and modest declines in OCC costs, we believe the current inventory level could renew conversation about a potential price initiative later this summer," said research analyst Mark Wilde. "We note that PPW last week raised its estimate of West Coast (USA) corrugating medium prices by $15/ton m/m for June. We’re currently assuming flat containerboard prices through 2012."

Box Shipments – Still Sluggish
According to data from the Fibre Box Association, May box shipments fell 0.6% year/year on average week basis. Actual box shipments in May were up 4.1% y/y due to 1 extra shipping day this year. While still sluggish, the average week number is in-line with YTD average of flat growth y/y. Comps (avg. wk basis): April: -0.7% y/y; March: +0.3% y/y.

Inventory Decline – Positive
Total inventories (mill & box plants) dropped 98.6K tons m/m to 2,229.4K tons (mills -23.9K tons, box plants -74.7K tons). Over the last decade, inventories have declined about 63,000 tons m/m (SD = 44,000). The 5-year move is -70,000 tons. In the last 2 months, inventories have declined 191.2K tons.

The large decline is partly driven by RockTenn's higher-than-normal maintenance (about 140,000 tons) during the current quarter, DB explained.

The avgerage 10-year May inventory level = 2,353K tons; the last 5 years = 2,219K tons.

After Falling in April, Operating Rate & Exports Rebounded in May
Industry operating rate rose to 94.7% from 91.0% in April. Linerboard = 93.2%; Medium = 98.7%. Total containerboard production rose 7.2% m/m and 1.3% y/y. Production for export rose approx. 13% y/y and m/m.

"We consider the increase in exports a bit surprising given soft European demand and a strong US Dollar vs the Euro. Year-to-date through May, production for export is up 5.3%y/y," Wilde said.

SOURCE: Deutsche Bank