Converter Outlook: Part 1 (CONT’D FROM PAGE 1)
All are efforts to tighten supply in the present market. “Frankly, I don’t see that succeeding as new supply, committed for 2023, is almost double what is being shut domestically. Not to mention the new capacity in Europe and in South America. Without further closures there will be an additional 2.1 million tons of new capacity in North America. In Europe the news concerning oversupply is even worse, 3.6 million tons in 2023 and another three million tons scheduled for 2024. So the question is, who will set market prices as the pricing power of the major producers is now diluted? Can the five major domestic producers still set pricing? I believe that day is over. In fact, every paper machine that is taken down by a West Rock, or another major producer is being replaced by a recy- cled mill from an independent/international source. So ul- timately, past consolidation may not have had the desired, long-term effect. “If I were a major producer, I am not sure how happy I would be about reducing capacity while other corporate entities open new mills. In fact, bigness may be the ulti- mate barrier to healthy performance. Further consolida- tion may well be blocked by the current administration’s anti-trust policies. Being an independent producer, being closer to the customer, making the right investments in people and equipment, not tied to quarterly performance, being flexible in outlook seems to be exactly where I think our success lies.
the demand found in 2019. It was not at all surprising that we would see a correction after such a tumultuous period of consumption. “The concern now moves to what should we expect for the first half of 2023. I don’t think the news is especial- ly good. You can see it in the way buyers have adjusted to the new reality. More business is up for bid. You can’t blame clients for testing the market. During the last two years they were tied to the vendor they had, whether hap- py or not. There were an extraordinary number of price in- creases for containerboard during that two-and-a-half year period. The net effect was an increase of $220.00/ton which meant boxes would have to reflect the increased cost. There were times during that two-year period where we saw a tightening of the supply of containerboard. De- mand outpaced supply. The market reflected the volatility of the moment. Prices escalated and there was a signifi- cant imbalance between supply and demand. Four price increases over 17 months. Unprecedented but explainable. “Now times seem more normal. Competition is more keen and new entrants may find it hard to get a foothold into business they might have assumed would be open to them. Containerboard supply is about to increase beyond current demand. Mill systems are taking downtime, and some have announced permanent closures, some tempo- rary shuts and others have taken maintenance downtime.
CONTINUED ON PAGE 24
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