Container Board Prices Increase $50/ton

In our Post of March 13 (http://kbpcblog.blogspot.com/2013/03/the-price-of-paper.html) we discussed the long-term drivers of the potential price increases and speculated that there would be a strong push for an increase in the second quarter. 

The second quarter is here and so is the price increase. Containerboard prices moved up $50/ton from $685-695/ton to $735-745/ton. 

US containerboard producers have pushed through their announced $50/ton price increase for April. Which should translate to box price increases in May. The price increase appears to be holding with suppliers unwilling to take orders at the old price or offer rebates against the new price. 

What is driving this increase? In the earlier posts we have talked about structural drivers of this market, but this increase hinges on a few key short-term issues. 

Near term the market is expected to tighten because of significant maintenance and project downtime plus the normal seasonal pickup in box demand. Box plant and mill inventories fell by 123,000 tons in March despite lower consumption due to two less shipping days. Total US containerboard inventories are 8% below last year. The April-June quarter have usually seen and average decline of  133,000 tons or about 6% over the past decade, but maintenance downtime and a favorable calender (22 shipping days in April) are driving expectations even lower, closer to a 200,000 ton drop in inventories.

US box shipments are essentially flat for the year. This is a supply side increase, with only little overall increase in demand. Box shipments fell in March by 6.8% to 28.911 billion ft² on an actual basis, though this reflects two less shipping days. Adjusting for the extra days, the shipments were up 2.5% from a year ago. Year-to-date box shipments are down 2.1%, , but after adjusting for the lost shipping days the first quarter shipments were up a very modest 1.1%.

Total containerboard production fell 2.6% in March 2013 vs. March 2012 and production is off 0.6% year-to-date. 

In a nutshell, mill inventories are down, supply is tight and prices are rising against seasonal demand. Recent consolidation and an emphasis on profitability will drive non-performing mills into the black or into extinction.

Endless Recycling?

The recycled content of liner board continues to increase, and the fact that U.S. OCC (Old Corrugated Container) has a 91% recovery rate is a great story for the environment. Although technology continues to find ways to use these highly recycled fibers to produce liner, the simple reality is that paper fibers are not infinitely recyclable. The more we recycle paper the shorter the fiber lengths become and these short fiber materials are dramatically impacting the performance characteristics of finished packaging. The amount of Recycled Content Paper (RCP) is growing.

Virgin fiber provides great crush and puncture resistance at low strength/basis weights, however the amount of virgin paper being produced in North America is not going to change any time soon, if ever. The regulatory environment effectively prohibits to construction of new virgin paper mills here in the US and at this time there are no plans to build virgin fiber mills anywhere in the world. There are rumors that Russia is evaluating the possibility, but for the foreseeable future the virgin content of packaging will be static while the worldwide demand for packaging increases. So RCP will be an increasing part of the mix for a long time to come.

Robotics: The Future is Now

Lean manufacturing is about constantly striving to do more with less. This is particularly important to  packaging companies like Kelly Box and Packaging where the material and operating costs are continuously rising. But lean manufacturing presents its own challenges in a company that runs 36,000 different parts in any given year, where the corporate culture is one of service the customer in whatever way necessary, including assembly, setup, component aggregation and many other services. "In many ways we are just a big job shop," says Joe Kelly, VP of manufacturing for Kelly Box, "but we also have a commitment to lean principles, and we strive to build in efficiency everywhere we can."  

For some the goal of lean manufacturing is means to realize the highest productivity possible while virtually eliminating waste. Others focus on minimizing human capital and optimizing process motion and flow. At Kelly Box they focus on a variety of different tools, but one way to cut to the chase is investing in technology. For some time now industrial robots have been a natural component of lean manufacturing. Robots offer the ultimate in repeatability. But newer robots also have the flexibility to improve the performance of a company like Kelly Box where they do more than 1200 machine setups in a month. The strength of a modern robot is the inherent ability to change, adding a valuable dimension of flexibility to the production process. Rather than running repetitively day after day, they provide precisely repeated motion within a specific production cycle, with the ability to achieve the precise repetition of a completely different motion for the next production cycle.

Kelly Box has found a place for robotics in its very challenging manufacturing environment where the ability to be flexible to an ever changing range of customer needs is central to the company's mission.

Check out the link below to see the Kelly Box Robot in action. http://www.kellybox.com/autofeeder.html