Strong demand, tight supply keep prices elevated

Staff -- Purchasing, 4/6/2006

Buyers can expect price hikes for paper-based packaging well into spring as producers try to offset wintertime cost increases for pulp, paperboard, linerboard and corrugating medium and kraft papers. "Raw material costs associated with the manufacture of paper tubes and cores have necessitated 6% increases for all product lines," says Ronald Domanico, senior vice president of Caraustar Industries in Atlanta.

All this hasn't come as shock to buyers: "Corrugated leadtimes have been getting longer and prices have been increasing," says the packaging buyer at a machinery manufacturing plant in Colorado. "Corrugated box makers are trying to get about a 9% increase," notes the purchasing director of a specialty automotive wheel-making plant in Iowa. "But I don't know if they will get the full increase requested." Yet, the purchasing manager of a heavy machinery maker in Wisconsin says his corrugated container costs "already have risen 6% this year," and he expects more box price hikes to come.

Paper-based packaging remains the most widely used but the raw materials for these packages have been under inflationary attack for some months now. Since last October, for example, linerboard mills have announced a series of price increases totaling $150/ton. While only $65 has stuck through February, buyers and analysts forecast additional increases soon.

"Our packaging raw materials follow indexes and quarterly implementation," says the purchasing manager of a consumer products company in Michigan. "So, the January price adjustments aren't applicable until April."

The supply of containerboard tonnage shrunk this year, so spot-market prices increased to $455 for 42-lb kraft linerboard in the East in February ($475 in the West) while 26-lb semichemical corrugated medium jumped to $435. Pricing surveys for Purchasingdata.com in late February show liner prices to be 17% higher than last autumn and medium costs to be 21% higher.

Finished corrugated box prices are already up 8% heading into the second quarter and analysts predict higher pricing this year. Morgan Stanley analysts in New York, for example, say that solid demand, reduced supply from supplier mergers and consolidations and higher-priced raw materials will cause prices of corrugated boxes to soar by as much as 25% in 2006.

Producers of uncoated recycled boxboard have announced a $40/ton price increase on their product lines to offset higher energy and pulp prices. Boxboard prices haven't been as strong as virgin liner and medium—mostly because overcapacity of these grades has taken longer to be eliminated.