Risk around corrugated box shipments remains, but recovery is on the horizon - Fastmarkets

Ahead of the Fastmarkets Forest Products North America Conference 2024, the September’s edition of the Paper Packaging Monitor analyzes the key factors influencing major market movements in North America. Here we share an excerpt of our experts’ insights. The full report includes data and forecasting on the pulp, paper packaging and containerboard markets. If you’d like to access the underlying data, or talk to our team of experts about their predictions for the remainder of 2024, contact us.

This month’s baseline containerboard price forecast continues to show prices remaining flat over the rest of 2024. The increase in prices in February and June was enough for upward pressure on kraftliner prices to depart, and near-term impacts on operating rates and OCC costs from the US port strike will likely be negative, even if they prove short-lived.

We anticipate that corrugated box shipments will recover further in the second half of 2024 and 2025, though there is some risk to this outlook if the US manufacturing sector and labor markets do not stabilize. Additionally, structural changes play just as large a role as cyclical factors in the demand outlook — and carry just as much risk.

September proved to be an eventful month for boxboard prices. Coated recycled board (CRB) prices increased, the first price movement in 12 months and the first increase in 27 months. We have been forecasting an increase in this market given the rising production costs for recycled producers and the tightening operating rates.

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A bit more surprising was the drop witnessed in coated unbleached kraft (CUK) prices, the first price change in 15 months. This market had been operating at less-than-optimal levels, but given the recent price increase announcements, it was surprising to see prices decline.

Prices for solid bleached sulfate (SBS) and uncoated recycled board (URB) remained flat. This month’s baseline price forecast calls for prices of all substrates to be flat through the end of the year, although there are some risks present in this forecast, particularly with the recent strike at eastern US ports.

Even though the US economy remains in expansion mode, we continue to focus on budgetary pressures faced by US consumers. Real food and beverage spending, whether at restaurants or on groceries, remains below trend, indicating that consumers have responded to inflation by pulling back on more expensive categories in this area and nonessential items.

Additionally, spending on services, such as recreation, travel and personal care, has also fallen below trend in another display of slower discretionary spending. Cooling labor markets may keep wage growth subdued, so budgetary relief will have to be driven more by price stability and interest rate cuts.

Goods prices, especially when excluding food, have been a source of price relief for consumers in 2024, which has helped support relatively healthy growth for total retail sales despite what we view as subdued food spending. The main sources of inflation’s stickiness in 2024 have been services and shelter costs.

Food manufacturing, a far more important sector for packaging markets, continues to struggle to regain its long-term growth trend.

Typically, processed food output increases at a pace of 1% per year, so the decline and stagnation of 2023-24 is well below its long-term expansion path.

The ISM Manufacturing PMI® was flat in August at 47.2, still clearly in contraction territory. More positively, the new orders and production components improved in September, with the survey also reporting a reduction in manufacturer’s inventories and prices.

The release of third-quarter statistics from the FBA and American Forest & Paper Association (AF&PA) will occur in late October, providing an update on the extent to which box shipments can expand on the recovery that began in the second quarter or, as in the first quarter of 2024, fall back into weakness.

The baseline forecast continues to project that box shipments will improve. In 2022, the ratio of box shipments to the weighted economic index dropped sharply, first returning to pre-2020 levels and then sinking to 10% below its long-term performance in early 2023 when excluding e-commerce.

With e-commerce included, demand for box shipments relative to economic activity sank even lower.

The more severe erosion in the relationship between e-commerce and box usage is not at all surprising given the extent to which e-commerce retailers have emphasized non-corrugated fulfillment methods such as mailers or in-store pickup. However, it is extremely notable that a smaller, but still very substantial, deterioration from the preexisting long-term trend has occurred across many demand segments and persisted for so long.

Interested in accessing the full report, including an outlook on the market for the rest of the year and more data visualizations? Sign up to access a free sample of the Fastmarkets Paper Packaging Monitor.