The recent economic slowdown, combined with a reduction in the panic buying of the last two years, has significantly impacted demand for corrugated packaging. Market indications show box volume will continue to adjust to shrinking demand. Linerboard prices have recently declined, and carton manufacturers are expected to announce price decreases in keeping with their raw material cost changes.
Pulp and paper announce decreases in linerboard pricing.
Following a $20 per ton linerboard decrease in November ’22, PPW announced a second $20 adjustment in mid-December, bringing the total decline over the past six weeks to $40 per ton. Since most carton pricing is based on the price of 42# linerboard, carton manufacturers should follow the most recent announcement with corresponding reductions in carton pricing.
Why the Recent Reduction in Linerboard Pricing?
Interest rate adjustments intended to slow economic activity, and deal with the high levels of inflation that contributed to increased prices, appear to have achieved their objective. Capacity is more closely aligned with demand, and supply pressures have significantly declined.
Since June 2022, business activity has moderated, and linerboard consumption has dropped to levels not seen since the last recession. In response, corrugated mill operating rates have decreased, bringing them more in line with lessening demand; however, balancing production/mill output with box and containerboard demand is becoming more complex.
Will the Reduction Stick?
Experts are confident that the recent reductions will hold, with additional adjustments possible throughout 2023. The industry consensus shows the economy is heading toward a more normalized supply and demand balance. New mill capacity, originally intended to meet the increased pandemic demand, is scheduled for early 2023 and will mean increased supply in a period where the market has softened.
Industry analysts are aligned in their opinions about the immediate future. There is no question that the economy is slowing, and we see the panic buying of the last two years subside. All indications are that cardboard box volume will continue to adjust to shrinking demand, suggesting that the economy is transitioning to less frenetic activity.
Fundamental economic theory dictates that in an environment with declining supply, we will continue to see price adjustments; the immediate question is more “when” than “if” prices will further decrease.
Events that supported price increases over the past two years have changed substantially, if not disappeared completely. With additional capacity and openings in production schedules, manufacturers will be looking for added volume to fill underutilized equipment. Demand declines have created a renewed focus on pursuing new business, and pricing is a significant tool in the new business tool kit.
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About the Authors
Together, Mark Rehl, Terry Bitter, and Jim Agnew have nearly 50 years of cost management consulting experience with clients across multiple industries, including manufacturing, education, hospitality, non-profit, transportation, and retail, with in-depth category knowledge in packaging, operations consumables, transportation, office consumables, industrial gases, waste management, and fleet management.