Containerboard Prices Could Continue to Rise BY RYAN FOX
CCM ® OCT Filter STATE-OF-THE-ART, HIGHLY ADVANCED DUST COLLECTION SYSTEM
The corrugated industry’s benchmark publication indicated in Febru- ary that prices for kraft linerboard rose $40 a ton, based on a market survey. That will raise box prices for customers with contracts tied to
the assessment. Though the hike seems to defy fundamentals, the price elasticity of demand may help it stick. The question for producers is how high can prices go before demand starts to fall? Demand for a good is said to be inelastic when it’s little affected by price changes. Last year, container- board prices rose $80 a ton, yet box demand inched up 0.1 percent. Given that demand has
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Ryan Fox
already retreated from a pandemic-driven peak to levels of nearly eight years ago, producers may be wondering whether higher prices will make much difference. Other industries have found that they can. Volumes for major food brands dropped recently after they raised prices due to inflation. Gen- eral Mills said on March 19 that organic volume in its recent quarter slipped 4 percent. To recoup it, the company may need to lower prices as consumer finances are pressured. Quick-serve restaurants also raised prices, pushing the price of a McDonald’s Value Meal to around $10. Again, volume fell, resulting in $5-$7 promotions becoming the norm. When prices get too high, buyers find alternatives. Bottled water was once shipped in corrugated boxes before transitioning to corrugat- ed trays with plastic overwrap. It’s now common for the bottles to be packaged only with the wrap. Amazon.com’s box consumption as percentage of shipments has fallen in recent years, annual sustainability reports show. We believe the aversion to boxes could be related to price and not just materi- al waste or efficiency. Amazon is shipping more products in their own packaging or paper mailing bags. From 2020-23, the company used over 1 billion of the bags, according to Georgia-Pacific, and it may be targeting 3 billion a year. Market Price? With any item, there’s usually a strategy for finding a market price. Corn pricing is dominated by futures. For a novel widget, the maker usually sets a price it thinks consumers will be willing to pay and adjusts it based on the sales response. The method for pricing boxes appears to differ from both approaches. There’s no futures market for corrugated, mainly because the open market for containerboard is so small in the US. Boxes, though cus- tomized for individual use, are mostly sold under long-term contracts and distinguished by styles and grades (for example, standard 32 ECT brown boxes with minimal print) that can be produced on a wide variety of machines. The corrugated industry typically bases movements in contracted box prices on shifts in the published price for #42 kraft linerboard, which is derived from open-market transactions. That’s provided a largely acceptable framework for years, while tending to work in favor of the major integrated producers. Though producers didn’t get the desired
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