Be Prepared as Corrugated Prices Could Increase Again

Corrugated prices could be on the rise once again. After pushing through a market increase that most buyers likely experienced in December 2016 or January 2017, the large market corrugated packaging producers are pushing for yet another increase. Corrugated mills are operating near full capacity after the indefinite shutdown of an International Paper linerboard mill in Florida, due to a recent explosion. Box shipments continue to show some strength.

The second increase in 6 months 

Kapstone, the fifth largest producer in North America, was the first to announce the increase on February 13. Other large market producers followed suit over the next several days, and those producers that have announced represent about 84 percent of capacity for containerboard in North America. This includes International Paper, the largest producer.

It is possible that the market will push back, similar to what happened in Q4 2016, with only $40 of the announced increase of $50 per ton actually being implemented. Additional factors that could lead to this increase being unsuccessful are the fact that linerboard is currently at an all-time high, and historically, some producers have “broken from the pack” and discounted open market transactions in order to try to increase market share.

But, if the current round of increases does go through, the earliest effective date likely will be June 1, 2017. If the increase is successful, the producers are indicating that the increase could be 10 percent on boxes and 12 percent on sheets.

Your organization may still be able to negotiate

Your organization still has room to push back on the increase and attempt to negotiate a reduced increase. Even if the full $50 per ton is pushed through, a proposed 10 percent and 12 percent increase are higher than what can be reasonably justified. Now is an opportune time for a review of your organization’s current corrugated contract. This can ensure that your pricing and contract terms are appropriate or allow for more favorable terms to be negotiated ahead of a potential increase.

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