Containerboard Price Hikes Appear Imminent

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 success

would 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