Industry Reports

Deutsche Bank Reports Summaries

080516 Deutsche Bank Report - April Containerboard Monitor

Deutsche Bank - Equity Research

* Sluggish shipments, lower inventories

April containerboard & box numbers show that domestic volumes remain sluggish, but not substantially worse than recent trend.  On a positive note, inventories fell sharply in April.  This was driven by both lower operating rates and higher net exports.  We are increasingly optimistic that this year's price hike initiative will play out like last year's – dormant through the spring and most of the summer but implemented in August/September.

* Shipments – not as bad as it looks

Box volumes rose 1.7% y/y in April, but adjusted for two more shipping days this year, they fell 7.6% y/y on an “average week”

basis.  Most observers tend to focus on the avg. week number, which would make the volumes look poor indeed.  We think that the “real” number is a blend of the two, or a decline of 3.0% y/y.  This decline is only slightly worse than the YTD blended decline of 1.9% y/y.  Considering that April 2007 was somewhat of a difficult comp (flat y/y in a year that was down 1.8%), the shipment number doesn't look like a negative surprise.

* Inventories – sharp drop

After several months of inventory build, April saw a sharp reversal of the trend.  Combined mill and box plant inventories dropped 133K tons m/m.  Looking at the last 10 years, inventories typically fall by an average of just 14K tons in April, suggesting a positive variance of 118K tons.  At 2.40MM tons, inventories are at the second-lowest April level in the last 20 years.

* Prices – going higher in late summer?

Inventories are in check, the IP mill outage will reduce supply, and the merger of Weyerhaeuser's c'board business into IP in 3Q should also help. With a weak US$ driving favorable trade flows and input cost inflation pressuring margins, virtually all factors except demand growth appear supportive of the price hike.