For high-end analysts, cardboard demand is one of secret indicator. The cardboard industry is an oligopoly, with a few producers making most of the boxes and International Paper is the leading producer of containerboard globally.
A limited number of competitors is supposed to be a positive factor for an industry. Fewer companies controlling supply should mean less of a chance that new capacity additions will upset the supply-demand balance.
The problem for the cardboard industry is box demand isn’t growing. Box shipment fell a surprising 3% year over year in March. What’s more, box inventories fell less than he expected. More inventory means less demand for new box production down the road.
Recent containerboard and box data suggests producers are having challenges managing excess inventory and production, and pricing could remain subdued for the foreseeable time. Basic material producers have a tough time outperforming the market when commodity prices are falling.
Box demand tumbled 3%, operating rates fell to 86.4% and exports slumped 19% y/y (containerboard and box shipments are a coincident indicator of trade momentum, and the latest data is quite simply a dire signal for global trade). Even with big production cut, inventories fell less than the seasonal norm and risk has increased that North American prices will follow sharp erosion in global prices.
Source: BMO
