May Domestic Paper Packaging Prices Hold Flat Across CBoard/Boxboard; Export Cboard Rises, as Expected

Research evidence excerpt

May Domestic Paper Packaging Prices Hold Flat Across CBoard/Boxboard; Export Cboard Rises, as Expected

May Domestic Paper Packaging Prices Hold Flat Across CBoard/Boxboard; Export Cboard Rises, as Expected Equity Research

discussed on the Q1 earnings call), though tone of the May RISI report is that this may be tough to

push through given the supply/demand imbalance.

In terms of industry capacity, RISI continues to cite at least an additional 250K tons needs to come

out of the folding carton segment to approach domestic s/d balance. We believe this is after CLW's

April announcement that it would restructure its Cypress Bend, AR faculty to cut that mill's production

capacity by ~half (and reducing workforce by ~20%), and SW's February announcement that it would

permanently close its La Tuque, Ontario mill (127K ton capacity). That said, providing a floor on SBS

pricing appears to be the current input cost shock, with surcharges selectively implemented to offset

some of these headwinds.

As we've discussed in prior reports, there does continue to be some shifting in the market from CRB

to SBS given the historically low spread between pricing of the two grades (with SBS a virgin grade

that should naturally demand a premium). However, switching from CRB to SBS does carry some

costs and takes time to complete. For example, qualification timelines, inventory adjustments, brand

requirements, and caliper/performance differences limit how quickly CRB tons can be displaced. With

the view that if the current narrowing in price differential between the two grades proves to be only

short term, switching from CRB to SBS may not be a wise move over the long term. Additionally,

CRB is a recycled grade, a factor that is very important to some customers, thus the current pricing