The drama over fiber price hikes in recent months is far from over. International Paper is teeing up another linerboard price increase as of June 1, Green Markets, a Bloomberg company, reported on Friday.
International Paper intends to raise prices on linerboard by $50 per ton and on corrugating medium by $80 per ton, according to Green Markets. International Paper declined to comment publicly on forward-looking pricing.
Analysts expect IP’s move won’t be an isolated incident.
“Traditionally, once one player moves, the rest follow,” said Ryan Fox, corrugated packaging market analyst at Bloomberg Intelligence. “I feel very confident that we'll see the rest of them in the next few weeks join the ranks.”
Wednesday morning, Fastmarkets RISI also reported that “two or three” large North American producers are implementing these $50/ton and $80/ton price increases on June 1. It didn’t specify which companies it believes are lining up the changes.
This would be International Paper’s second major linerboard price increase this year. IP was among five of the six largest North American containerboard and corrugated box companies — including WestRock, Packaging Corporation of America, Pratt Industries and Cascades — to initially announce nearly identical $70/ton to $75/ton price hikes for Jan. 1. Collectively, those five companies comprise nearly 70% of North American containerboard capacity. Subsequent increases followed for different grades, and other companies increased their prices as well.
But producer frustrations erupted when Fastmarkets RISI’s monthly pricing report that published Jan. 19 indicated all containerboard and boxboard prices remained flat in January compared with December, which prompted speculation that the markets were rejecting the initial price increases. Then in February, that index only showed an uptick of about $40/ton, which is much less than the $70/ton to $75/ton increases that companies announced. Domestic containerboard and boxboard pricing remained flat in April, according to Fastmarkets RISI.
Markets’ lack of reflecting the full increase is “one of the reasons why our models were signaling this [new] increase,” said Bloomberg’s Fox.
In a note to investors Wednesday morning covering RISI’s vague Wednesday price increase news, Michael Roxland, senior paper and packaging analyst at Truist Securities, similarly said, “We believe these producers announced this increase given the lack of full recognition of the previous increase in RISI index pricing and persistent cost inflation.”
Fox said he was not surprised by the increase or its timing. Other analysts also have suggested in recent weeks that price increases could be on the horizon. RBC Capital Markets said in an April 28 note to investors that cost inflation and rising operating rates could result in containerboard companies trying to make further price hikes.
Those expectations align with predictions in Bank of America Global Research’s independent corrugated box converter survey, released April 11. It showed that 70% of respondents anticipated higher pricing over the next 12 months for containerboard, and 71% reported they expect higher pricing for boxes during that same time period. They generally predicted that companies would attempt increases in Q2 or Q3.
During IP’s April 25 earnings call, executives generally would not comment on pricing. However, when an analyst asked whether the company might leverage other tools to get a higher increase following the partial recognition in Q1, Chief Commercial Officer Tom Hamic said, “If you think back to previous price increases, you should feel confident that it’s going to flow through the same way.”
For months, analysts have described how raising prices under the current economic conditions is a rather unusual move. Typically, markets support price increases during boom times, but the recent wave has occurred at a time of tight demand. Roxland pointed out Wednesday that producers historically have had success raising prices when operating rates are higher than 95%, but the industry’s first-quarter operating rate averaged 90.8%.
But analysts also have noted that inflation is playing heavily into pricing decisions. Detailing the spike in certain input and operating costs, Roxland cited a 248% increase in OCC prices since January 2023.
International Paper, Packaging Corporation of America and Graphic Packaging International all have reported inflationary cost pressure on their most recent earnings calls over the past two weeks. And while they generally cited demand improvements in Q1 over last year’s trough, supply and demand dynamics remain out of balance.
Containerboard production increased 7% year-over-year and domestic new supply rose 3.7% year-over-year, according to the American Forest & Paper Association’s Q1 containerboard report, released Friday. The Fibre Box Association also released data on Friday showing a 1.1% year-over-year decrease in containerboard shipments. “The first quarter of 2024 was the worst shipping quarter in eight years,” Fox said, while offering the reminder that other factors are at play.
“Demand is pretty weak. But our model is not just about supply and demand — it does have some of their raw material costs in there,” Fox said. “When those raw material prices are changing, it's going to trigger some [action].”
Fiber companies formally announced their price increases earlier this year via news releases, but so far no such confirmation has come for the predicted June bumps.
