North American 2012 Paper and Packaging Outlook
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Earlier this month, Deutsche Bank surveyed North American paper and packaging executives regarding their outlook for 2012, receiving 125 responses. According to senior analyst Mark Wilde, these responses provide clues regarding trade expectations for prices, costs, volumes, capital spending and profitability in 2012. Once again, participants were asked "what is Wall Street Missing?" as well as opinions regarding the "best managed" companies in the industry. Packaging Corp. of America took the top spot in the survey for the fourth straight year, Wilde reports. However, this year, they shared the top spot with RockTenn, he adds.
Modest Volume Expectations in 2012
The expected range for box volumes is flat to up 2% y/y, Wilde says. The outlook for market pulp is more cautious, with most respondents expecting volumes to be flat y/y. In the paperboard grades, the general expectation appears to be for volumes to be flat to up 1% y/y. "As we would have expected, printing and writing grades are expected to remain weak. In fact, a number of participants indicated that the accelerated decline in demand for these papers is a big concern," Wilde notes.
Expectation for Rising Costs
Most expect input costs (with the exception of natural gas) to increase from current levels, Wilde continues. The trade appears relatively optimistic about prices for wood products and paperboard grades. There was no clear message regarding market pulp and kraft paper prices, with nearly the same number of participants predicting increases, as decreases. "Given the pessimism about printing and writing volumes, it is not surprising that most respondents believe that newsprint, uncoated free sheet, and coated paper prices will decline," Wilde points out.
Digging Deeper on Containerboard and Boxes
Expectations for box demand in December and January were on average in the +1 - 2% y/y range, with January anticipated to be a bit better than December. Demand is still considered the "most important" driver of containerboard and box prices. The U.S. dollar and exports ranked lowest in importance this year. "Looking at the year ahead, 44% of our respondents believe containerboard and box prices will rise in 2012. Among our coverage, this would be most positive for RockTenn, International Paper, Packaging Corp., and KapStone. Boise also has exposure to containerboard," Wilde explains.
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