As year ended 2008 is approaching, there are few significant events that has happened over the last one to two weeks. Businesses in the South East Asian region remained mix. Business in Vietnam is reasonably strong as many box plants are running at full steam to cope with rising demand in preparation for the Lunar New Year in mid Feb 2010.
As for wastepaper (AOCC), we experienced a significant jump in its prices mainly contributed by higher freight cost. However, many believed that the underlying issue is due to low availability. Recovery rate remained high but generation of wastepaper dropped drastically due low consumer spending in all major countries like US, Europe and Japan.
As for paper mills utilization rate, many experienced an increased in utilization rate indicating that strong orders were received. Many of the US mills are having back log orders which can last till Feb 2010 next year.
Based on the above circumstances, my views are containerboard prices will rise dramatically by end Jan 2010 powered by high AOCC price and rising demand to increase stock level. Nevertheless, it is still too early to judge but based on all recent changes in the key drivers of coontainerboard industry the outlook in 1Q2010 & 2Q2010 is very promising but competition for wastepaper (AOCC) will intensified.
Tuesday, December 22, 2009
Thursday, November 19, 2009
Containerboard Characteristics
Date : 20/11/2009
In order to proper manage the containerboard business, one has to understand the fundamental characteristic of the industry. Based on market findings, many believed that the CT industry has the following characteristics.
a) A commodity product
CT products is hardly differentiated as it is common and freely traded across all nations in the world. As such the supply and demand depends very much on the world economic trend. The product itself can be applied in any countries with minimum impact to the quality of boxes.
In view of its nature of products, the prices of CT is highly sensitive and as global demand increases box plants or packaging will be price taker. However, in global downturn the CT mills will be the price taker instead.
As such, one has to be prepaped himself to weather this changes.
b) Cyclicality
One cannot deny that this industry is subject to cyclical ups and downs. It is closely tracked to the economic cycles. The recent global financial crisis sees major mills struggle to pull thru. The huge closed down of manufacturing factories in China has an immediate impact to the larger CT mills in China. Some of these large mills were either shelved their expansion plan or curtail the production output.
The key determinant of such variation or cyclicality in demand of CT paper is largely affected by the closure of mills, newly built mills and buying pattern of wholesalers. However, such variation in demand trend is predictable but the impact to volume of sales is difficult to predict.
Recovered paper supply has become one of the new determinants of CT Industry cyclicality as the supply and demand of recovered paper has affected the prices and output.
As recovered paper has a direct correlation with public consumption and consumer spending, the generation of recovered paper largely depend on economic trend. The recent slowdown in consumer spending in US, Europe and Japan has affected the supply of recovered paper. The impact has caused many mills to stop production due to insufficient recovered paper which is the main component of CT products.
One will never deny that recovered has become one of the determinants of the industry and form a major component to the industry cyclicality
Nevertheless, one has to adapt and be aware of the nature of the industry. One must be able to cope during downturn and make all he can during an upturn ie a commodity product.
c) Capital intensity
Historically, a CT paper mill is considered as capital intensive industry. However, this barrier has weaken over the last 10 years as there are many new machines supplier in Asia with collaboration with western machine producers who are able to manufacture much cheaper machines. Most of these producers are in China, Japan, Korea and Taiwan. Nevertheless, the cost of building a new machine is still substantial.
In order to be successful, a CT player must prepare itself to weather the above changes and must has a reasonable strategy to sustain its profitability.
In order to proper manage the containerboard business, one has to understand the fundamental characteristic of the industry. Based on market findings, many believed that the CT industry has the following characteristics.
a) A commodity product
CT products is hardly differentiated as it is common and freely traded across all nations in the world. As such the supply and demand depends very much on the world economic trend. The product itself can be applied in any countries with minimum impact to the quality of boxes.
In view of its nature of products, the prices of CT is highly sensitive and as global demand increases box plants or packaging will be price taker. However, in global downturn the CT mills will be the price taker instead.
As such, one has to be prepaped himself to weather this changes.
b) Cyclicality
One cannot deny that this industry is subject to cyclical ups and downs. It is closely tracked to the economic cycles. The recent global financial crisis sees major mills struggle to pull thru. The huge closed down of manufacturing factories in China has an immediate impact to the larger CT mills in China. Some of these large mills were either shelved their expansion plan or curtail the production output.
The key determinant of such variation or cyclicality in demand of CT paper is largely affected by the closure of mills, newly built mills and buying pattern of wholesalers. However, such variation in demand trend is predictable but the impact to volume of sales is difficult to predict.
Recovered paper supply has become one of the new determinants of CT Industry cyclicality as the supply and demand of recovered paper has affected the prices and output.
As recovered paper has a direct correlation with public consumption and consumer spending, the generation of recovered paper largely depend on economic trend. The recent slowdown in consumer spending in US, Europe and Japan has affected the supply of recovered paper. The impact has caused many mills to stop production due to insufficient recovered paper which is the main component of CT products.
One will never deny that recovered has become one of the determinants of the industry and form a major component to the industry cyclicality
Nevertheless, one has to adapt and be aware of the nature of the industry. One must be able to cope during downturn and make all he can during an upturn ie a commodity product.
c) Capital intensity
Historically, a CT paper mill is considered as capital intensive industry. However, this barrier has weaken over the last 10 years as there are many new machines supplier in Asia with collaboration with western machine producers who are able to manufacture much cheaper machines. Most of these producers are in China, Japan, Korea and Taiwan. Nevertheless, the cost of building a new machine is still substantial.
In order to be successful, a CT player must prepare itself to weather the above changes and must has a reasonable strategy to sustain its profitability.
Containerboard - Market Situation in Europe
Date : 19/11/2009
Market demand in Europe improved substantially in Oct 09 and Nov 09. At present, price increased of Euro60-65 per ton seems to be effective. One of the key reasons for the success was low inventory holding at box plants. Most box plants are now replenishing the stock. The production curtailment and permanent shutdown of mills are also the key reasons that pushes paper prices upwards.
However, brown Kraftliners prices remained steady without any sign of increase. This is partly due to high stock due to last minute locked of orders from US mills before removal of black liquor subsidies.
Many believed that prices of KLB will follow suit in next 2 months once the inventory are used up. However, recycled containerboard prices were on the uptrend over the last 2 months. Most box plants reported that most paper mills are very firm with the prices increases. As such, many believed that Fluting and Testliner will continue to increased.
The critical time is in Dec 09, whereby it is a low demand season. My views are prices of Containerboard and Kraftliner board will maintain at present price level till next year. If mills miss the opportunity in Nov 09, chances of successful price increase in Dec 09 will be low.
Market demand in Europe improved substantially in Oct 09 and Nov 09. At present, price increased of Euro60-65 per ton seems to be effective. One of the key reasons for the success was low inventory holding at box plants. Most box plants are now replenishing the stock. The production curtailment and permanent shutdown of mills are also the key reasons that pushes paper prices upwards.
However, brown Kraftliners prices remained steady without any sign of increase. This is partly due to high stock due to last minute locked of orders from US mills before removal of black liquor subsidies.
Many believed that prices of KLB will follow suit in next 2 months once the inventory are used up. However, recycled containerboard prices were on the uptrend over the last 2 months. Most box plants reported that most paper mills are very firm with the prices increases. As such, many believed that Fluting and Testliner will continue to increased.
The critical time is in Dec 09, whereby it is a low demand season. My views are prices of Containerboard and Kraftliner board will maintain at present price level till next year. If mills miss the opportunity in Nov 09, chances of successful price increase in Dec 09 will be low.
Thursday, November 12, 2009
Market Updates - KLB price hike
Date : 13/11/2009
The recent move by US policy maker in removing black liquor (material used in pulping) credits has resulted in price hike for KLB (Kraftlinerboard) across Europe and Middle East. Some believed that the price hike will eventually spread to Asia as well.
In view of the raising production cost of KLB after the removal black liquor credit, new contract price of KLB will increased substantially. As market reseach showed that with the current subsidies most of these pulp mills were only making a marginal profits. Thus, the sustainability of these mills depend very much on the success of future price hike. Similarly, the recent shutdown of containerboard mills by major corporate companies in US will further strengthen mills position in raising the price of KLB. However, the imports of Kraft Top Liners from Asia into US will give a challenge to domestic US mills in raising it prices.
With the removal black liquor subsidies, one may foresee that pulp prices ie USKP and BSKP will also raise to its next level. As such, there are more sentiments that indicate that future prices of KLB will be higher than current year prices. Similarly, one may also foresee that pulp substitutes (recovered paper) like Hard White Shavings and AOCC will escalate further from current prices.
The success of price hike for KLB is very much dependant on the followings
a. The demand for KLB in 1Q2010. At 4Q2009, we foresee that prices of KLB will maintain due to normal low demand season - low working days (Christmas & New Year) despite high in Unbleached Softwood Kraft Pulp prices. However, generally in Asia, business is slow in 1Q2010.
b. The price gap of the Asian Kraft Top versus KLB. At present, the price gap is substantial. However, with the continuous increased in USKP price, this may close the gap. Thus, price hike for KLB may be successful.
c. The new start up of a KLB mill in Australia in 4Q2009. The additional supplies may deter the price hike of KLB. At present, there are a substantial exports of Australian KLB to US.
d. The exchange rate of USD vs other major currencies. The continuou weakness in US Dollar may result in cheaper KLB even after the price hike of KLB
Based on the above sentiments, there is high possibility that the increased may not be successful. Nevertheless, US mills had no alternative but to push forward or risk being closed down.
The recent move by US policy maker in removing black liquor (material used in pulping) credits has resulted in price hike for KLB (Kraftlinerboard) across Europe and Middle East. Some believed that the price hike will eventually spread to Asia as well.
In view of the raising production cost of KLB after the removal black liquor credit, new contract price of KLB will increased substantially. As market reseach showed that with the current subsidies most of these pulp mills were only making a marginal profits. Thus, the sustainability of these mills depend very much on the success of future price hike. Similarly, the recent shutdown of containerboard mills by major corporate companies in US will further strengthen mills position in raising the price of KLB. However, the imports of Kraft Top Liners from Asia into US will give a challenge to domestic US mills in raising it prices.
With the removal black liquor subsidies, one may foresee that pulp prices ie USKP and BSKP will also raise to its next level. As such, there are more sentiments that indicate that future prices of KLB will be higher than current year prices. Similarly, one may also foresee that pulp substitutes (recovered paper) like Hard White Shavings and AOCC will escalate further from current prices.
The success of price hike for KLB is very much dependant on the followings
a. The demand for KLB in 1Q2010. At 4Q2009, we foresee that prices of KLB will maintain due to normal low demand season - low working days (Christmas & New Year) despite high in Unbleached Softwood Kraft Pulp prices. However, generally in Asia, business is slow in 1Q2010.
b. The price gap of the Asian Kraft Top versus KLB. At present, the price gap is substantial. However, with the continuous increased in USKP price, this may close the gap. Thus, price hike for KLB may be successful.
c. The new start up of a KLB mill in Australia in 4Q2009. The additional supplies may deter the price hike of KLB. At present, there are a substantial exports of Australian KLB to US.
d. The exchange rate of USD vs other major currencies. The continuou weakness in US Dollar may result in cheaper KLB even after the price hike of KLB
Based on the above sentiments, there is high possibility that the increased may not be successful. Nevertheless, US mills had no alternative but to push forward or risk being closed down.
Recovered Paper - Updates 12/11/09
Date : 12/11/2009
News on fire at a recovered paper warehouse of a major containerboard mill in China had raised concerned on prices of recovered paper. Many recovered packers had started to stock up or offered higher prices in anticipation of shortage in supply.
Similarly, major paper mills in Asian countries had started to watch closely at prices of recovered paper as many are worried that price will escalate to a higher level.
As a result, many are expecting the following scenarios.
a. Prices of finished product (containerboard) will raise due to cost pressure as a result of sudden raise in recovered paper prices.
b. Some Asian mills who are not buying (in negotiation with foreign packers) at current price level may starts to buy again. This may caused a snow ball in demand for recovered paper. Thus, prices of recovered paper may shot up again.
Nevertheless, if Asian mills are having sufficient recovered paper inventory and low demand season for packaging goods, the above will not materialise. It is still too early to say but let see in the next couple of days.
News on fire at a recovered paper warehouse of a major containerboard mill in China had raised concerned on prices of recovered paper. Many recovered packers had started to stock up or offered higher prices in anticipation of shortage in supply.
Similarly, major paper mills in Asian countries had started to watch closely at prices of recovered paper as many are worried that price will escalate to a higher level.
As a result, many are expecting the following scenarios.
a. Prices of finished product (containerboard) will raise due to cost pressure as a result of sudden raise in recovered paper prices.
b. Some Asian mills who are not buying (in negotiation with foreign packers) at current price level may starts to buy again. This may caused a snow ball in demand for recovered paper. Thus, prices of recovered paper may shot up again.
Nevertheless, if Asian mills are having sufficient recovered paper inventory and low demand season for packaging goods, the above will not materialise. It is still too early to say but let see in the next couple of days.
Wednesday, November 11, 2009
Containerboard Application in Packaging Industry
Date : 11/11/2009
Containerboard paper are mainly used in the construction of packaging boxes. These boxes are are form from a flat board. A flat board consists of 3 layers of paper, 5 layers or even 7 layers of paper depending on the usage of the cartons.
The picture reveals the number of board type and it fluting sizes ranging from A, B, C, and E. The differences in each type of fluting is indicated by the take up ratio ie length of fluting paper (Corrugating Medium) before corrugation and that of the liner (Testliners, Kraftliners and Krafttop Liners) or flutes per unit length. The following are the indication of take up ratio by flute type and its height
A Flute - 1.50-1.54 (take up ratio) and flute height of 0.467cm
B Flute - 1.30-1.32 (take up ratio) and flute height of 0.246cm
C Flute - 1.43-1.45 (take up ratio) and flute height of 0.361cm
E Flute - 1.27-1.30 (take up ratio) and flute height of 0.157cm
They can be used in combinations as show in the picture above.
The types of flute used determine the stacking strength required. The higher the take up ratio the higher the stacking strength. Thus, A flute boxes will have a higher stacking strength.
The used of lower take up factor like B-Flute are mainly for small boxes or can cases which the can itself already provide the stacking strength.
Containerboard paper are mainly used in the construction of packaging boxes. These boxes are are form from a flat board. A flat board consists of 3 layers of paper, 5 layers or even 7 layers of paper depending on the usage of the cartons.
The picture reveals the number of board type and it fluting sizes ranging from A, B, C, and E. The differences in each type of fluting is indicated by the take up ratio ie length of fluting paper (Corrugating Medium) before corrugation and that of the liner (Testliners, Kraftliners and Krafttop Liners) or flutes per unit length. The following are the indication of take up ratio by flute type and its height
A Flute - 1.50-1.54 (take up ratio) and flute height of 0.467cm
B Flute - 1.30-1.32 (take up ratio) and flute height of 0.246cm
C Flute - 1.43-1.45 (take up ratio) and flute height of 0.361cm
E Flute - 1.27-1.30 (take up ratio) and flute height of 0.157cm
They can be used in combinations as show in the picture above.
The types of flute used determine the stacking strength required. The higher the take up ratio the higher the stacking strength. Thus, A flute boxes will have a higher stacking strength.
The used of lower take up factor like B-Flute are mainly for small boxes or can cases which the can itself already provide the stacking strength.
Saturday, November 7, 2009
Containerboard - Market Situation for Recovered Paper
Date - 7/11/2009
The availability of OCC (Old Corrugated Carton) for containerboard producers remained tight. Prices of OCC from various destinations (US,Europe & Japan) remained at high although it was lower than the peak last year.
The main reason for low availability was mainly attributed to low consumer spending in high purchasing power countries like Japan, US and Europe. As a result, lesser used boxes were generated over the last 3 quarters in 2009.
Most paper millers foresee that prices of recovered paper will continued to escalate further based on the following reasons
a. New Containerboard mills
In view of massive expansion of containerboard mills with the Asian region dominately by China, the demand for recovered paper will raise even further. These new mills had high capacity ranging from a quarter to half a million tons per annum.
As such, demand for OCC will continue to increase.
b. High price of USKP (unbleached softwood kraft pulp)
The continuous surge in USKP price also force containerboard mills to revert more to recovered paper as the prices between OCC and USKP had grown wider. Unless the prices of USKP soften, otherwise the paper millers will continue to substitute some of the USKP portion to OCC. Thus, demand for OCC will continue to surge.
With winter season around the corner, prices of USKP will continue to remain high as trees harvesting will be affected especially in Russia and Northern America.
c. Lagging effect
Despite some sign of improvement in demand for containerboard in 3Q2009, the recovery of OCC will lagged behind as the lead time from usage to collection will lagged behind by 1-3 months depending on the efficiency of the collection system.
Caution
Nevertheless, the sustainability of current OCC prices will very much dependant on the demand for Containerboard. As we know, demand for containerboard had weakened over the last 2 weeks (end Oct to early Nov) thus if demand continue to fall, paper millers will go for curtailment. As a result, demand for OCC weaken thus price of OCC will dropped again to its original level.
The availability of OCC (Old Corrugated Carton) for containerboard producers remained tight. Prices of OCC from various destinations (US,Europe & Japan) remained at high although it was lower than the peak last year.
The main reason for low availability was mainly attributed to low consumer spending in high purchasing power countries like Japan, US and Europe. As a result, lesser used boxes were generated over the last 3 quarters in 2009.
Most paper millers foresee that prices of recovered paper will continued to escalate further based on the following reasons
a. New Containerboard mills
In view of massive expansion of containerboard mills with the Asian region dominately by China, the demand for recovered paper will raise even further. These new mills had high capacity ranging from a quarter to half a million tons per annum.
As such, demand for OCC will continue to increase.
b. High price of USKP (unbleached softwood kraft pulp)
The continuous surge in USKP price also force containerboard mills to revert more to recovered paper as the prices between OCC and USKP had grown wider. Unless the prices of USKP soften, otherwise the paper millers will continue to substitute some of the USKP portion to OCC. Thus, demand for OCC will continue to surge.
With winter season around the corner, prices of USKP will continue to remain high as trees harvesting will be affected especially in Russia and Northern America.
c. Lagging effect
Despite some sign of improvement in demand for containerboard in 3Q2009, the recovery of OCC will lagged behind as the lead time from usage to collection will lagged behind by 1-3 months depending on the efficiency of the collection system.
Caution
Nevertheless, the sustainability of current OCC prices will very much dependant on the demand for Containerboard. As we know, demand for containerboard had weakened over the last 2 weeks (end Oct to early Nov) thus if demand continue to fall, paper millers will go for curtailment. As a result, demand for OCC weaken thus price of OCC will dropped again to its original level.
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