In the three years to 2017, the price of paperboard has been rising at an estimated annual rate of 0.6% due to growing demand and slightly higher paperboard production costs. Moreover, prices for paperboard have been highly volatile during the three years to 2017.
Demand for paperboard from industrial sectors has grown as improvements in the economy have spurred construction and manufacturing activity. During the period, the industrial production index has risen, which has resulted in more paperboard and packaging papers have been used to package and transport various goods. Rising consumer spending also feeds demand increases because paperboard is commonly used to package consumer packaged goods. The rising domestic population has boosted demand for paperboard as well; a larger populace consumes more food, which is often transported with paperboard and packaging papers. Together, these trends have stoked demand for paperboard and contributed to price increases during the three years to 2017.
With rising demand suppliers have been able to pass higher wage costs and pulp, paper and allied product prices on to buyers. Pulp, paper and allied product prices have risen due to higher lumber prices while an increase in paperboard mill wage costs reflects a broader uptick in wage rates for workers in the US. Faced with higher production costs, suppliers have passed some of these cost increases on to buyers in the form of higher prices.
Moreover, paperboard prices have been highly volatile. Prices grew in 2014 and 2016 but declined in 2015 due to falling pulp prices in that year. In late 2016, prices rebounded strongly as a host of major paperboard producers announced price hikes in order to account for higher operating costs. High price volatility increases the risk of drastic price shifts for buyers, and makes it more difficult for buyers to project and budget for future costs. Therefore, buyers should strongly consider engaging in contracts with suppliers to lock in prices and avoid the potential cost escalation. Engaging in contracts will also allow buyers to leverage a larger total order value to seek more sizable discounts from suppliers.
In the three years to 2020, the price of paperboard is expected to increase at an annualized rate of 1.6%. Growth in consumer spending and industrial activity, driven by improving economic conditions, is forecast to continue driving up demand for paperboard, sending prices higher in the forecast period. In addition, rebounding oil prices are expected to make plastic products less popular, decreasing competition from this substitute and allowing suppliers to raise prices at a faster rate. During the next three years, consumer spending is expected to grow at an average, while industrial production is anticipated to rise. Because paperboard is the leading material used in the production of industrial and consumer packaging, prices will face upward pressure as demand from end users rises. In addition, population growth will contribute to demand and price growth for market products. The domestic population is also expected to continue growing through 2020, boosting demand and prices for market products, which are often used to transport food items.
Rising pulp, paper and allied product prices will also contribute to price growth in the three years to 2019, driven primarily by growing global demand for wood-based products. Higher wood pulp prices will increase the cost of production for paperboard and packaging papers, forcing suppliers to further increase the price of market products to protect profit margins.
Price volatility is expected to fall to a low level as pulp, paper and allied product prices steady and demand from export markets steadies. This will benefit buyers by helping them more accurately budget for paperboard.