The future rate of U.S. box demand growth served as a key discussion item during Boston-based RISI Inc.’s International Containerboard Conference Nov. 12-14. RISI Vice President of Global Packaging Ken Waghorne forecast box demand could grow up to 3 percent in 2019 compared with 1.5 percent blended average growth year to date as of October 2018. There have been hopes that e-commerce growth since 2016 could spur growth in box demand.
Adam Josephson, a New York-based director and equity research analyst at KeyBanc Capital Markets Inc., says while some in the industry estimate that e-commerce will lead to box demand growth in 2019, he’s not so sure it will have that kind of impact next year.
“There is a narrative that exists that e-commerce is going to be a game-changer for this industry,” he says. “But recent evidence is not even supportive of that. Just look at the recent demand growth [for boxes] of 1.5 percent. It’s no better than it’s been since 2011.”
“If e-commerce were a panacea, one would think that box demand growth would much more closely approximate GDP growth than it has.” – Adam Josephson, KeyBanc Capital Markets
Josephson says year-to-date blended average box demand growth is at 1.5 percent, which is only modestly better than the average of 1.2 percent from 2011 to the present. Yet projected real gross domestic product (GDP) growth in 2018 is almost double that figure at about 3 percent, he reports.
Josephson adds that e-commerce sales “cannibalize retail sales” to some degree. He explains that e-commerce might generate somewhat more old corrugated containers (OCC) than retail; however, he adds that Amazon is trying to reduce its corrugated usage through Amazon Certified Frustration-Free Packaging and has increased its use of plastic bags and mailers instead.
“The idea that e-commerce is a panacea never made sense to me,” he says. “If e-commerce were a panacea, one would think that box demand growth would much more closely approximate GDP growth than it has.”
Josephson says he expects box demand will grow at a rate of 1 percent per year from 2018 to 2021, which is down from the 1.4 percent annual growth from 2013 to 2017. Although this means OCC demand might grow somewhat, he says it won’t cause upward pressure on OCC prices in 2019 because of China’s restrictions on recycled paper imports.
“Stronger demand means more pull for OCC, but obviously that has not been happening because of China,” he adds.
“We’re seeing more OCC in the stream, both on the residential and commercial side.” – a recycler in the South Central U.S.
E-commerce also has had some negative effects on recycling, one of which is that not all the OCC coming from e-commerce is being recycled properly. Dec. 3, Cleveland’s Plain Dealer newspaper reported that less OCC has ended up at Cleveland-area material recovery facilities (MRFs) and more OCC is ending up in landfills. The newspaper article included a statistic from USA Today that reported that “300,000 fewer tons of corrugated containers [were] recycled in the United States” in 2017 compared with 2016.
A mill operator and recycler in the South adds that e-commerce has had some positive and negative effects on the recycling industry.
“With the Amazon effect, corrugated ends up in curbside pickup,” he says. “It’s improved mixed qualities in some ways. But I still think we’re losing a lot in the waste stream with e-commerce.”
However, another source says e-commerce has had positive effects on the recycling industry. A recycler in the South Central U.S. says e-commerce has led to steady supply of and demand for OCC in his region during the past three to five years.
“We’re seeing more OCC in the stream, both on the residential and commercial side,” he says. “Demand on the sales side to mills has been very consistent.”
As a result of increased demand for OCC, the recycler in the South Central U.S. adds that he plans to invest in new equipment to better capture some of the smaller OCC. He says he anticipates an increase in demand for OCC from mills in the U.S. South and in Mexico. Prices have fared well for OCC in recent months, and he says he is not expecting dramatic increases or decreases in prices heading into 2019.
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