Is Containerboard Positioned for a Price Hike? UFS Gaining Traction

May 28, 2010 - The pieces are in place, say industry analysts, for another price increase this year by containerboard producers.

“While there have been no formal announcements, we are increasingly convinced of the third price hike attempt in 2010,” said Mark Wilde, senior analyst at Deutsche Bank covering the Paper & Forest Products sector.

Price hikes in January and April added $110/ton to domestic list prices. “We expect the next attempt to be in the $40-50/ton range with implementation slated between July 15 and September 1, Wilde said, and he points out that industry fundamentals remain strong — box shipments up 4.8% y/y in April, operating rate at 95%, and domestic and offshore supplies are tight.

Currently, however, box pricing remains a bit of a mystery. “If the [integrated producers] can't/don't raise box prices when containerboard supplies are this tight, we ought to have some management changes in the industry,” Wilde quipped.

Most European producers have announced a third price increase of EUR 50/ton on unbleached kraft linerboard, effective June 1. For US exporters, strengthening of the US dollar against the Euro will trim any benefit from the Euro price increase, Wilde noted.

OCC prices to China fell $10/ton this week and reports suggest that prices could fall another $30-35/ton in coming weeks. Domestic OCC price fell $10/ton in May.

Uncoated Free Sheet
List prices for various UFS grades were up $30-40/ton (announced price hike was $60/ton) in May. 50-lb offset rolls were up about $30/ton to $915-935/ton and 20-lb repro bonds were up $40/ton to $1,090-1,135/ton. Producers expect to realize the balance increase in June and July as contract prices are revised and smaller suppliers implement the price increase. This is the second price increase of the year following the $40/ton price increase in both cut-size and roll grades in March, Deutsche Bank analysts said.

The recent price increase in UFS is driven by capacity cuts (Domtar, IP), low inventory levels (- 17% y/y), and sharply higher pulp prices, although most big UFS producers in North America are integrated, so rising pulp prices are of little concern.

Brazilian producer Suzano recently announced June 1 price increase for various regions: US +$66/ton (effective May 17), Continental Europe +10-12%, UK +8%, Latin America +8% and Brazil +4.8%. Major risks to higher prices include a decline in market pulp prices in the coming months and increased competition from lower priced imports (Q1 imports = +12% y/y), DB analysts noted.

SOURCE: Deutsche Bank

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