A few months back, we didn’t expect to be talking about an autumn price
initiative. But, . . . here we go. Over the next several days, DB believes we
could hear about containerboard price hike announcements in the $40-60/ton
range. Since industry convention is to provide 30 days notice, July
announcements would allow producers to begin raising prices before Labor
Day, taking advantage of a seasonal pick-up in the market. For the record, we
are not including any H2 increase in our earnings estimates. Any successwould be upside to our existing numbers.
The expected initiatives appear largely driven by tighter supplies. During April
and May, the industry reduced containerboard inventories by nearly 200K/tons.
Levels are now at historically lean levels. From a demand standpoint, producer
& broker contacts are reporting surprisingly strong order backlogs with
delivery dates now stretching into later half of August. Industry contacts are
also noting: (1) willingness by independent converters to accept a
containerboard hike in order to raise box prices & restore margins, (2)
completion of International Paper’s acquisition of Temple-Inland and the
subsequent DOJ-mandated disposal of 3 containerboard mills, and (3) Rock-Tenn’s mid-2011 acquisition of Smurfit-Stone.
Source: Mark Wilde Research Analyst, Debbie Jones Research Analyst - Deutshe Bank Market Researh