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Containerboard report: October operating rates surge above 100%

Nov. 15, 2017 – Vertical Research Partners’ packaging and forest products analyst Chip Dillon offers insight into the containerboard sector as October 2017 operating rates surge above 100 per cent and inventory levels declined.

• Box shipments increase by 5.4 per cent in October on challenging comp
This morning, AF&PA and the Fibre Box Association (FBA) released its October 2017 U.S. box shipments and box plant/containerboard mill data. Box shipments (measured in billion square feet) increased by 5.4 per cent year-on-year on an actual basis. However, there was one additional shipping day this October versus October 2016. Adjusting for this differential, “average week” or per-day shipments increased a 0.6 per cent. When there is a difference in shipping days in comparable months, we see the average of the actual and per-day (average week) shipments change as a solid reflection of the strength of the box business (as some box customers receive the same number of boxes per month regardless of the number of shipping days). The average of these two figures from October was 3.0 per cent, a respectable figure in light of the residual impact from the recent hurricanes/flooding as well as the challenging comparable, as October 2016 box shipments grew by 2.2 per cent on an equivalent basis (as actual shipments declined by -0.2 per cent and average-week shipments grew by 4.6 per cent) from October 2015.

• Year-to-date shipments strong; tonnes grow faster than square feet
Year-to-date (through 10 months) shipments are up 2.6 per cent on an actual basis and 3.1 per cent on a per-day basis, which is well ahead of 2016’s total shipment growth of 2.1 per cent. There have been 211 shipping days so far in 2017 versus 212 days at the same point in 2016. Containerboard consumption by box converting plants was 2.809 million tonnes, up 5.8 per cent from October 2016 (and up about 1.0 per cent per day) – indicating that board consumption in tonnes grew faster than converted products in square feet by 40 basis points.

• Inventories fall slightly more than normal despite unsustainable operating rate
We also learned that containerboard inventories at mills and box plants declined by 77,900 tonnes in October from their September level, to 2.301 million tonnes. The decline compares with the 10-year average month-on-month decline for the month of October of 72,300 tonnes. This greater-than-normal “draw” was the result of strong box demand and an increase in exports. However, this greater-than-average inventory decline occurred despite the unsustainably-high 101.3 per cent operating rate, as well as the implied further decline of in-transit inventories (of an estimated 24,000 tonnes) that was added to the roughly 100,000-tonne draw of in-transit inventories during August and September. Inventories were higher by 2.2 per cent from October 2016, ending the streak of year-on-year inventory declines at 16 months (through September 2017). Weeks of supply remained flat at 3.6 weeks versus September. This tied October 2016 as being the second-lowest weeks-of-supply level for the month of October in 12 years (with 2007 and 2012 each being lower at 3.5 weeks).