Energy prices on the rise.
Spring/Summer 08
Raw Material and energy price rises are ensuring paper and board prices remain firm in 2008. In the last 2 Quarters of 2007 demand continued to outstrip supply within Europe and with no new paper sources coming on stream for the next 1-2 years, paper prices unfortunately continue to be pushed upward with the 5th increase announced in recent times biting in the Autumn of 2007. Whilst Demand has drifted downward in western Europe during the first Half of 2008 hikes in energy costs are only making it more expensive for the corrigated case papermakers.
Tight Markets Worldwide - Summer 2007
More containerboard price increases expected
In its "Global Corrugated Forecasts and Analyses 2005-2009" the International Corrugated Case Association (ICCA) expects global corrugation production to grow at an annual rate of 4%. No surprise then, that increasing demand and rising prices world-wide for casemaking raw materials are set to continue well into 2009. The linerboard capacity in the USA is expected to rise by only 1% in 2008 while medium capacity will likely remain static through to 2009. With the US domestic containerboard demand increasing year on year, a further price hike of $40/per tonne is expected this summer. In a recent report to investers, analyst Chip Dillon of US based citigroup said, "Up to now, we had assumed the current container board pricing upcycle in America would end late this year. However given the total supply/demand balance and now significant new capacity in the short term, we see this upcycle - which began in late 2005 - continuing through 2008."
Demand for casemaking raw materials in Asia is also on the increase - mainly as a result of the continuing box demand in China. Significant increases in the new containerboard capacity are currently coming on stream in the region, particularly China, with seven modern corrugated case material machines to be commissioned in South East Asia in the next twenty four months. The net increase if capacity in this region will be partly offset by the closure of numerous smaller high cost, and evironmentally challenged Chinese mills as a a result of the enforcement of new government environmental regulations. Despite the heavy investment, China is still a net importer of containerboard (2.4 million tonnes in 2006) and is expected to remain so far for at least a further 5 years.
European demand for corrugated casemaking materials in 2006 improved by 3.7 percent - the improvement in demand for recycled grades was even more bouyant at 4.4 percent. Following the closure of some 600,000 tpa of European casemaking paper capacity in 2006, demand/supply balance improved and prices started to increase in late 2005. The mills had, at that time, been incurring heavy cost increases over a period of time and the upward shift in prices allowed some cost recovery.
The current round of European price increases (February, March and May) are fuelled by the lack of new European mill capacity expected in the next 2 and a half years and the continued need for mill margin recovery. The announced new capacity of a Modern Karton in Turkey (400,000 tpa) will be swallled up by strong domestic demand (+8 percent) and two major rebuild projects in Belgium and Italy (180,000 tpa combined) are expected to be offset by further intergrated mill closures already announced in Italy and France. It is not until 2010 and beyond the European capacity will be significantly increased with the expected investment from Prowell and Mondi Swiecie and rumoured investment from three other major intergrated groups.
The corrugated case materials market in Eastern and Western Europe right now is some 25 million tonnes made up from 19.7 million tonnes of recycled and 5.3 million tonnes of kraftliner and semi-chemical fluting. The demand growth of recycled grades is expected to be 3 percent each year for the next few years - equating to to an increase in demand of 600,000 tpa. A growing European imbalance between supply and demand for recycled grades in 2007-2009 has become evident, especially with most European mills already operating at 95-96% of capacity.
The current round of price increase by the European mills poses special problems for UK box makers. Currently the consumption of recycled grades in the UK is 1.75 million tonnes per annum, about half a million tonnes of which is imported. Because of European price increases, European mills now find that their UK prices (Landed and Delivered) are not always as attractive as their domestic prices. While some three quarters of the half a milllion tonnes of UK imports can be considered as strategic imports, the withdrawal from the UK of any part of the balance would have a significant effect on UK boxmakers — especially as UK mill capacity is fully utillised and UK mill exports have been reduced to the minimum (apart from the inter-group movement).
Boxmakers can therefore expect the demand/supply balance for recycled grades to remain very tight - to the extent that they may need to consider some substitution back to kraftliner (that is not under so much demand pressure). The current imbalance of demand and supply will become further eveident if, as expected, UK mills see the price increase in mid to late summer - and it is unlikely to be the end of the current upcycle.
Latest Update - Spring/Summer 2007
The tightening of supply across Europe of paper for corrugated case making (which could lead to rationalising paper supplies later in the year) continues to firm up paper prices with price rises now having filtered through to board and box prices for the Spring of 2007. With the reduction in paper mill capacity across Europe, supply versus demand is driving paper prices upward. With raw material prices increasing at an alarming rate and frequency, box companies have to pass on that extra cost to their customers in order to survive. (You can see from the trade chart below on what has happened to recycled paper prices since 2005). The corrugated industry is showing signs of strain as capacity is taken out and we've seen a distinct rise in companies going into administration during the latter part of 2006 and the first half of 2007 with Merlin Pkg being the latest casualties. Box prices will have to increase during April/May. If paper does become in short supply as the year progresses prices will be pushed even higher and a good track record on payment will play a major part in influencing who gets paper, board and boxes and who doesn't. See 'Spring Trade info' at foot of page for more historic details..
Previous update - Autumn 2006.
The unprecedented price rises in paper that we have seen over the last 12 months are holding firm. Shortages of paper making capacity throughout Europe now so many mills have closed is supporting that trend.
Previous update - Summer 2006.
Since our last update earlier this year regarding paper prices, things have not got any easier for any of us. Paper & board producers have now put up their prices for a 4th time in 12 months. This will hit us during the month of September. Paper producers continue to be bullish in their approach with none of previous price increases showing signs of slippage. The main driver is immense energy price hikes - paper making continues to be a high energy consumer with now approx 25% of paper making cost being that of energy. Paper making capacity is also still being lost in the UK with a general tightening of supply across Europe.
The Increase that will hit us during September is substantial and in a double digit percentages on Board. This will filter through to high single digit increases on boxes
Looking at the corrugated box market in the UK as a whole, it continues to go through some fundamental changes at present as it has currently an approximate manufacturing over capacity of 30%. This has lead to prices being driven lower to a point where some box makers are losing money in their desperation to fill their production capacity. The larger groups of companies are already closing box plants that are not making money and more closures will follow from within our industry. Capacity will be taken out so that supply eventually drops to match demand.
The coming 18-36 months will be a testing time for our industry where box plants close and those inefficient, poorly managed or financially stretched companies will not be able to remain in business. All box end users are therefore advised to check that their own box supplier is financially sound and able to support their needs over the coming years.
This update isn't meant to paint a gloomy or negative picture but it is designed to inform and to be realistic as our market changes and evolves.
From Greyhounds perspective if we are to remain viable as a business and protect you our customers' position and interests as well as our own for the long term, it is better that we keep you informed of the situation and work together.
We will continue in our quest to mitigate these increases wherever possible and will re-cost each and every job as it comes to order.
If you have any questions or concerns please contact our sales team on 0113 276 2366.
Thank you.
Trade Info Spring 2007:
Kraftliner markets tighten.
The early January fire at Cellulose du Pin is expected to have the effect of taking 100,000 tonnes of liner out of the European market over the next 3 or 4 months. With a tight market already in evidence in Europe for recycled brown CCM's, this is unwelcome news for the kraftliner sector.
With a tight market already in evidence in Europe for recycled brown CCM's, this is unwelcome news for the kraftliner sector.
CCM price rises
The market for brown recycled casemaking raw material grades continues to be tight, right across Europe. As a result, independent and integrated European mills have announced price increases of up to 40 Euro/tonne effective February. Currently, no increases have been announced in the UK but it is expected that a £25/tonne increase may well be announced in March.
As a result, independent and integrated European mills have announced price increases of up to 40 Euro/tonne effective February. Currently, no increases have been announced in the UK but it is expected that a £25/tonne increase may well be announced in March.