Board Market Insight
August 2021
We recently wrote to all customers regarding an impending price increase on board products containing recycled fibres (WLC, Liner, Recycled Kraft, Greyboard & Display Board) but the following insight also applies to virgin fibre grades (SBS, GC1, GC2) that have been experiencing a massive increase in demand and inflationary cost pressures.
Due to a number of factors somewhat triggered by the global pandemic and other macroeconomic factors we have seen a significant number of unprecedented developments in the supply of board products during 2021.
Covid-19 Pandemic / Container Shipping Crisis / Withdrawal of supply from deep-sea suppliers
These include withdrawal of supply from deep-sea (Asian/South American/U.S suppliers due to a massive increase in the price of shipping containers. This was driven by an imbalance of supply and demand exacerbated by the early lockdown in Asia during 2020 and then latterly the Western economies. In addition, the failure of shipping lines reduced overall capacity.
You may have seen some of this on the news through 2020 and the situation has worsened in 2021. Container shipping prices are typically agreed based on contract rates for annual volumes. Any demand for shipping containers over and above the agreed volumes are subject to spot pricing that can be 4-5 times as high as the contract rates. We are being warned that 2022 shipping contract rates could settle at 150-250% of historical rates.
The knock on effect has been for European producers of SBS, GC1, GC2 to become fully sold out and demand being in excess of 120% of production capacity rates due to the on-shoring of demand for these products as deep-sea suppliers were unable and unwilling to absorb the ever increasing logistics costs. In addition, they have seen input costs (pulp, chemicals, energy) increase substantially
Sustainability / Move away from plastic packaging
Other factors driving record demand for board products is the continued campaign against single use plastics and replacing them with wood fibre based alternatives.
This is a global phenomenon which has led to increased domestic demand in, for example, the U.S. for kraft board products (traditionally a large exporter of these grades) has led to a large shortage of supply into European markets which in turn has led to some other Kraft board grade manufacturers to be oversold and on extended lead times with also spiraling input cost due to a number of factors including transport, recycled and virgin pulp fibre.
This has led to a switch in specification away from Kraft (due to lack of availability) to other FBB grades (especially in higher calipers) in order to package heavy duty food items that previously would have used plastic as a lighter and stronger (but less sustainable) packaging solution
Supermarkets specifying FBB products in place of clear plastic trays for fresh fruit and vegetables in order to appeal to environmentally conscious consumers
E-commerce explosion / Recycled Fibre Cost Increases
The further explosion of E-commerce during the pandemic has put further pressure on recycled fibre markets due to the demand for corrugated production for packaging for the likes of major online retailers.
Quality recycled fibre became less available due to lockdown, lack of office workers, waste collections and quality of waste being less predictable.
Demand for WLC product increasing due to the instance of home consumption of food versus bulk supplies for restaurant and changes in patterns of consumption due to the change in commuting patterns.
Perfect Inflationary Storm
All in all this has created a perfect inflationary storm in terms of (lack of) board availability and increasing input costs.
Even the largest users are having mill allocations imposed and cut and any supply side shocks (e.g. mill fire / production issues) are causing extreme knock on effects in terms of availability.
Logistics cost have been rising significantly in terms of final mile deliveries due to increased fuel prices and the well documented lack of HGV drivers as part of the further consequences of Brexit and the Covid-19 Pandemic.
Some end user contract for high volumes of boards agreed direct with mill groups have traditionally included fixed annual pricing but these are being broken in 2021 to ensure mills do not suffer unsustainable losses.
Key Message
The market has not seen sustained pressure for a prolonged period for many years (if ever). The impact of this is being felt by all users large and small.
Our aim is to make all of our customers aware and assure them we are doing our best to minimise the impact, however rising costs, extended lead times and lack of availability are making this difficult.
With lead times now averaging 20 - 25 weeks, most manufacturers are quoting price ruling at date of dispatch. This is due to no visibility of the input costs so far in advance.
We would recommend you educate your end-user customers on the market challenges faced and ensure you are covered with appropriate price ruling clauses.
We recently wrote to all customers regarding an impending price increase on board products containing recycled fibres (WLC, Liner, Recycled Kraft, Greyboard & Display Board) but the following insight also applies to virgin fibre grades (SBS, GC1, GC2) that have been experiencing a massive increase in demand and inflationary cost pressures.
Due to a number of factors somewhat triggered by the global pandemic and other macroeconomic factors we have seen a significant number of unprecedented developments in the supply of board products during 2021.
Covid-19 Pandemic / Container Shipping Crisis / Withdrawal of supply from deep-sea suppliers
These include withdrawal of supply from deep-sea (Asian/South American/U.S suppliers due to a massive increase in the price of shipping containers. This was driven by an imbalance of supply and demand exacerbated by the early lockdown in Asia during 2020 and then latterly the Western economies. In addition, the failure of shipping lines reduced overall capacity.
You may have seen some of this on the news through 2020 and the situation has worsened in 2021. Container shipping prices are typically agreed based on contract rates for annual volumes. Any demand for shipping containers over and above the agreed volumes are subject to spot pricing that can be 4-5 times as high as the contract rates. We are being warned that 2022 shipping contract rates could settle at 150-250% of historical rates.
The knock on effect has been for European producers of SBS, GC1, GC2 to become fully sold out and demand being in excess of 120% of production capacity rates due to the on-shoring of demand for these products as deep-sea suppliers were unable and unwilling to absorb the ever increasing logistics costs. In addition, they have seen input costs (pulp, chemicals, energy) increase substantially
Sustainability / Move away from plastic packaging
Other factors driving record demand for board products is the continued campaign against single use plastics and replacing them with wood fibre based alternatives.
This is a global phenomenon which has led to increased domestic demand in, for example, the U.S. for kraft board products (traditionally a large exporter of these grades) has led to a large shortage of supply into European markets which in turn has led to some other Kraft board grade manufacturers to be oversold and on extended lead times with also spiraling input cost due to a number of factors including transport, recycled and virgin pulp fibre.
This has led to a switch in specification away from Kraft (due to lack of availability) to other FBB grades (especially in higher calipers) in order to package heavy duty food items that previously would have used plastic as a lighter and stronger (but less sustainable) packaging solution
Supermarkets specifying FBB products in place of clear plastic trays for fresh fruit and vegetables in order to appeal to environmentally conscious consumers
E-commerce explosion / Recycled Fibre Cost Increases
The further explosion of E-commerce during the pandemic has put further pressure on recycled fibre markets due to the demand for corrugated production for packaging for the likes of major online retailers.
Quality recycled fibre became less available due to lockdown, lack of office workers, waste collections and quality of waste being less predictable.
Demand for WLC product increasing due to the instance of home consumption of food versus bulk supplies for restaurant and changes in patterns of consumption due to the change in commuting patterns.
Perfect Inflationary Storm
All in all this has created a perfect inflationary storm in terms of (lack of) board availability and increasing input costs.
Even the largest users are having mill allocations imposed and cut and any supply side shocks (e.g. mill fire / production issues) are causing extreme knock on effects in terms of availability.
Logistics cost have been rising significantly in terms of final mile deliveries due to increased fuel prices and the well documented lack of HGV drivers as part of the further consequences of Brexit and the Covid-19 Pandemic.
Some end user contract for high volumes of boards agreed direct with mill groups have traditionally included fixed annual pricing but these are being broken in 2021 to ensure mills do not suffer unsustainable losses.
Key Message
The market has not seen sustained pressure for a prolonged period for many years (if ever). The impact of this is being felt by all users large and small.
Our aim is to make all of our customers aware and assure them we are doing our best to minimise the impact, however rising costs, extended lead times and lack of availability are making this difficult.
With lead times now averaging 20 - 25 weeks, most manufacturers are quoting price ruling at date of dispatch. This is due to no visibility of the input costs so far in advance.
We would recommend you educate your end-user customers on the market challenges faced and ensure you are covered with appropriate price ruling clauses.
