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Fastmarkets RISI and financial analysts revealed that the three major paper giants, International Paper, GP Georgia Pacific and Smurf & Vickers Rock, have recently announced that they will increase the prices of a wide range of paper products from January 1 next year. Among them, International Paper said it will raise the price of white kraft paper by $70 per ton and corrugated paper by $90 per ton.

Georgia Pacific announced price increases for several paper products. In the East, prices for kraftliner and white-faced kraftliner will increase by $60 per ton, while prices for recycled paper and corrugated will increase by $90 per ton. In the western region, the price of kraftliner will be raised by US$80 per ton, the price of recycled board and white kraftliner will also be raised by US$90 per ton, and the price of corrugated paper will remain at US$90 per ton.

Schmalfeldt & Wesselock announced that it will increase paper prices from January 1 next year. The price increase involves a number of paper grades, with unbleached kraft and recycled containerboard going up by US$60 per tonne and corrugated up by US$80 per tonne. The company also announced a $70 per ton increase for white-faced kraft paper in its western region and a $50 per ton increase in its eastern region.

In its latest quarterly report, Smurfit Veselock noted that the company faces a challenging operating environment in 2023 and 2024. Poor macroeconomic conditions, inventory adjustments at some customers and changes in consumer spending have led to a decline in demand for the company's products. At the same time, rising labor costs and raw material prices have further increased the Company's operating pressure.

Nonetheless, the company has achieved good profitability this year through the price increase measures taken previously. The company's financial report shows that in the third quarter of this year, the price of corrugated boxes rose compared to the same period last year, but sales fell slightly. The company's chief financial officer, Ken Powers, said on the earnings call that there are differences in market performance in different regions, with relatively weak demand in the South and Midwest, while the West maintained solid growth.

It's worth noting that there's usually a three- to six-month lag between raw material cost increases and final product price increases. This means that the company's current profitability reflects, to some extent, the effect of the countermeasures taken previously.

The latest price hikes by the three North American paper giants - Smurfy Veselock, International Paper and GP Georgia Pacific - seem to signal that paper prices may continue to rise in 2025. The news came as quite a surprise to industry insiders, as they generally expected that the price increases by paper companies would be relatively small and delayed given the current market supply situation.

Prior to this, U.S. packaging companies were the first to take action, with price increases planned for January 1 - US$70 per ton for kraft paper and US$90 per ton for corrugated paper, which equates to the top four U.S. boxboard producers having already announced price increases.

Ryan Fox, a corrugated packaging market analyst at Bloomberg, expressed misgivings about the U.S. packaging companies' decision to raise prices. He noted that despite a pickup in market demand, overall shipments did not show significant growth in the third quarter. Taking into account the industry's overall data show only a slight improvement in demand, as well as competitors' overcapacity, U.S. Packaging Corp. at this time the timing of a significant price increase seems a bit out of the ordinary.

Fox emphasized that the $70/ton and $90/ton increases announced by U.S. Packaging equate to an 11.5% price increase. Meanwhile, its competitors such as International Paper have cut production by 500,000 tons for economic reasons. Fox said: “If the U.S. packaging companies really full demand, then the price increase may be understandable. But the problem is, International Paper, Schmalfeldt Veselocke and other competitors are not full production. From the overall market, the supply is still excess, carton prices should be on a downward trend.”

A new survey by U.S. Bank Securities shows that although the carton industry is beginning to recover, it has not yet fully recovered, and some companies are still facing oversupply. Bloomberg Intelligence corrugated packaging market analyst Ryan Fox pointed out last week that carton prices are trending downward due to oversupply.

In an investor report released on Friday, Fox expressed surprise at International Paper's price increase announcement. He noted, “Considering International Paper experienced an economic shutdown of 500,000 tons in the first nine months of the year and a 9% year-over-year volume decline in the last quarter, the decision to increase prices is truly surprising.”

Ryan Fox further analyzed that the market may not react positively to this price increase by International Paper. “Considering the current market demand conditions, it is still unknown whether the market will accept such a substantial price increase,” he said. “Analysis of the green market shows that the market is not only stabilizing, but even showing some signs of moderation. recent price declines in OCC, diesel and natural gas have further exacerbated this downward trend.”

International Paper had announced its second round of price increases for 2024 in May of this year and recently reported positive results from the move. The company attributed the $70 million revenue increase in the third quarter to positive pricing index movements and expects additional gains in the future.

“Looking ahead to the fourth quarter, we expect further improvement in the overall earnings of our Packaging business. This is due to the positive impact of previously implemented price adjustments.” So said CEO Andy Silvernail on the Oct. 31 earnings call.

Michael Loxland, senior paper and packaging analyst at Truist Securities, believes that International Paper's and Georgia Pacific's decision to increase prices could drive up the stock prices of competitors such as PCA, Graves and Smurfit Visible Rock. “We believe the price increases are primarily driven by a combination of growing market demand and continued escalating production costs,” he noted in an investor report released Friday.

Many of these companies have announced multiple price increases during 2024. While some companies have been successful in putting price increases in place, not all of them have been successfully implemented. For example, Cascades' third price increase notice in September was not fully reflected in Fastmarkets RISI's October data. In response, Loxland explains that such price increases require the combined support of the industry's large integrated players to be successful.

“At the end of the day, the key is the price of cartons. Are buyers of cartons willing to pay higher prices? Earlier this year, the industry made its second price increase and the market reacted very strongly.” Says Fox, “It's not an unreasonable thought to expect that there will be new price increases in the future.” He likened the volatility of paper prices to a “roller coaster” and said, “The question is, is now the best time for another price increase?” It's hard to give a definitive answer unless we watch how the market evolves in the new year.