What to Know About the Corrugated Price Increase

In September, we told you about a price increase announcement from the large-market corrugated producers, with an anticipated effective date of October 1. There was a slight delay in this increase, but it was officially pushed through late last week. 

The actual increase came in at $40 per ton, which is smaller than the originally projected increase of $50 per ton of linerboard. This lower increase is due to non-contract purchasers not having indexing in place, as well as less conviction from the producers to push the increase. 

The announced increase seems to have taken effect firmly in the eastern U.S. but with slightly less traction in the west. Thus, if you’re using a western-based corrugated supplier and they are passing along a full increase, you may have room to negotiate. At a 100 percent pass through rate, the magnitude of the increase is around 6.5 percent (lower than the 8 percent previously expected).

If your current supply agreement is based on a 75 percent pass through rate, and you had a base contract price of $615 per ton effective January 1, 2016, then your actual cost increase should be around 5 percent.  If your contract is based on a linerboard price of $630 per ton prior to January 1, then your actual increase will be slightly smaller, in the 4.8 percent range.

As mentioned last month, now is a good time to review contracts for corrugated purchasing and ensure your firm is protected appropriately from market-price fluctuations.

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