Inflation and the Corrugated Supply Outlook in North America

Strong consumer demand for retail goods and myriad supply chain issues boosted prices, which analysts say will affect many containerboard mills and businesses next year.

U.S. retail sales continue to reach new highs, primarily driven by food retail and e-commerce. Rabobank reports the total U.S. retail sales rebounded to more than 10.7 percent in the second quarter of 2021, compared to the same time period in 2019. The surge was which accounted for as much as 16 percent of the total share of retail spending.

Pile Of Money — Chicago, IL — Mid America Paper Recycling / Single …

The pandemic prompted the acceleration in consumers’ e-commerce spending, making it one of the most important demand drivers for corrugated packaging. Even as global economies have rebounded and physical retail has recovered, e-commerce remains strong, Rabobank notes, maintaining a 13-percent share of retail sales, substantially higher than in pre-COVID times.

The significant need for containerboard production has also been driven by resilient retail consumption and the fast recovery of industry production. But as we blogged earlier, retail inventory concerns have caused by supply chain disruptions as well as plant shutdowns. Logistics issues have led to low of sales-to-inventory ratios across all industries in the U.S.

It will take time to fill the inventory gaps as retail demand levels off. This, the analysts claim, will exacerbate an already tight paper packaging market, which is expected to continue into mid-2022.

Chart — Chicago, IL — Mid America Paper Recycling / Single …

Rabobank says containerboard shipments are up 7.7 percent and 6.2 percent in the first half of 2021 compared to the same period in 2019 and 2020, respectively. Linerboard operating rates were above 100 percent in March 2021, staying above 95.7 percent on average during the first six months of the year, compared to rates of roughly 88 percent in 2019. These high operating rates coupled with input cost inflation have created tight demand.

Mid America’s President Paul Pirkle agrees, several such supply side, recycling and pulp and paper mill challenges have surfaced with COVID and the e-commerce boom. These have resulted in changes in material usage, screening, collection and recycling in different parts of the market, as well as the future expectations of the market. Recovered paper (RCP) prices are soaring, and the price of papermaking chemicals, such as corrugating starch, have also increased. Collecting and sorting RCP, primarily old corrugated containers (OCC), during the global pandemic, reduced availability.

Light in the tunnel

Pirkle sees these factors continuing to pose a hurdle for the availability of recycled fiber in the short term. "Domestic demand for OCC will continue to increase and the export market will rebound down the road. The increased demand will create an imbalance between supply and demand, which will drive prices for recovered fiber higher."

Prices are projected to be higher than at pre-pandemic levels, according to Rabobank. About 70 percent of containerboard capacity consists of recycled grades, which means there is a growing uptick in demand for recycled fiber.

Pirkle concurs with pricing and supply projections starting to normalize gradually in mid-2022 as demand levels off and more capacity comes on line in the next three to five years. More details are available in the November/December 2021 edition of Corrugated Today at https://nvpublications.com/corrugated-today/

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