DAN MAHEU / SR VP TECHNICAL SERVICES & PAPER PRACTICE / RTi

Paper Market Sector Overview

All sectors of the market dealing with retail packaging, online buying, take-out food, and tissue are experiencing a surge in demand associated with consumer panic buying due to the Coronavirus.  We are not able to project the duration of this surge any more than we can project the virus progress itself.  The demand levels cannot be sustained, given no fundamental growth in the economy beyond the surge.  Some demand changes may sustain when the virus passes if consumers elect to continue food purchases supporting home dining and increased online purchasing to avoid physical shopping. Still, these changes will not help the current demand surge to remain post virus.  Any negotiations in these sectors at this present time will probably be less than productive as the leverage lies with the suppliers, given the uncertainty in the market.  Packaging for the non-retail and non-online has really taken a hit in demand as it has collapsed.

Labels and specialty food packaging papers are also experiencing the demand surge due to action in the retail and take-out sectors.

Any printing and writing grades are under severe demand pressure as office closure is collapsing cut size utilization, retailers are not advertising due to shelter in place shutdowns and empty grocery shelves. There is no need to spend on advertising as there is no store access and little to encourage the consumer to buy since they take it from the shelves as it arrives in the store.  P&W demand could fall another 10% in this period, and this is one category that has an uncertain return as some of these advertising changes may well become permanent.

Folding Carton Market

The statistics in the folding carton market have not been parallel to the corrugate market.  The growth in this market has been flat to slightly negative.  However, we believe that given the large share of the folding carton into retail food packaging and fast food take-out that market growth should turn positive quickly.  This turn will last until the virus situation is resolved, and the hoarding-driven excess demand disappears.  There may be residual market share growth depending on how many customers stay with prepackaged foods post virus.

SBS will remain in excess supply due to capacity in Maine and from imports of Multilayer board from Europe

CRB supply will be flat, and market growth could cause price increases however the new paper machine under construction by Graphic Packaging will be a governor on price increases defending market share for the coming capacity increase vs. capacity curtailment

SUS/CUK is a duopoly, and we believe any demand increases will result in price increases mitigated only by the threats of South American imports which is less certain than the established importing in SBS

Corrugated Box Market  |  CONFUSING TIMES

The market for corrugated has drifted from the trends of slow growth and capacity expansions coupled with export market price and volume decline to domestic demand growth and export growth.  The driving force has been the changes due to the Coronavirus.

Corrugate box volumes have increased by 2% and could achieve 5% in the next month.  Export volumes and pricing have also increased in the last 30 days.

The growth is in the retail and online markets, which are experiencing substantial demand spikes.  The demand growth, coupled with supply uncertainties, has created the buyer concern for the food and retail packagers under pressure to ship to retail outlets.

Moving forward, as the virus passes, the demand surge will decline; however, the manufacturing of many products for the US market may well switch from Asia to the US, Canada, Mexico, and Latin America.  Even Puerto Rico may be reestablished as a source of Pharmaceuticals.  The corrugate market will probably resume a growth mode in the 1 to 2% range if some of the mentioned changes occur.

On the capacity side, the market has indefinitely lost 3% of current capacity with significant equipment failures at two of International papers southern mills.  About 1 to 1.5% could be restored by mid-April, but the remaining 1.5 to 2% may remain offline for quite a bit longer. Recycled production has increased by 13% and will continue to increase with the startup of 6 paper machines and conversions.

The key issue corrugate buyers currently face is when will box demand normalize from the virus issue. Arrangements with suppliers should remain in a stationary mode until demand stability is restored.

Recycled Fiber

The price of recycled brown fiber remains at very (historically) low levels.  US curbside recycling, heavily dependent on the mixed waste category for a paper outlet, has required many waste recyclers to direct curbside to landfill due to a lack of demand for the wastepaper. Recycled Liner and Medium producers in the US that can successfully utilize Mixed Waste as part of their furnish are now very cost-advantaged to industry competition.  However, there has been some upward movement from these historically low levels due to increased demand domestically and globally.  The current consumer market virus behavior is going to impact the supply of good waste corrugate, but the direction is difficult to ascertain.  We would project a price drift upward to $50/ton for OCC to attain breakeven levels for the collection of waste, which will increase supply availability.  The movement to higher levels will probably slow until demand begins to exceed supply.

The prices and market information presented herein are strictly the opinion of RTi and are based on knowledge collected within the industry and on assessments by RTi staff.

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