Packaging News

Converters face squeeze as buyers resist price hikes

Packaging converters are facing a renewed financial squeeze after buyers said they would fight a new round of board and paper price rises.

Suppliers including M-real, Smurfit Kappa, UPM and Mayr-Melnhof said last month they were planning to push prices up again as a result of tight supply and their own input costs, which have shot up in the past year (see box).

But buyers are privately sceptical over whether the rises are justified and have said they will resist taking on extra costs themselves.

Paper and board converters, meanwhile, are struggling to pass on input costs and facing extremely long lead times for board purchasing that have been extended from a previous average of four to six weeks to up to 20 weeks in some cases.

Buyers contacted by Packaging News were reluctant to speak publicly about the supply situation, but privately questioned the mills’ justification for pushing through price rises of up to 20%.

One board buyer for a major high-street retailer described the price rises as a "self-fulfilling prophecy" that was the result of over-buying in the wake of the Chile earthquakes and Swedish mill strikes earlier in the year.

He said: "We believe this is a short-term problem and [the price rises] are not justifiable.

"We are starting to source board from further afield and think that as the mills see the reducing volumes as more people move further afield the prices will come back down, including the lead times."

Another packaging buyer at a well-known food and drink brand said: "There is some level of supply difficulty here but I’m not sure a 10% to 20% rise is a true reflection; and when suppliers’ costs go down, you never see their prices coming down.

"We’ve resisted in the past by moving suppliers but it’s getting tougher – everyone is asking for similar increases."

The managing director of a medium-sized carton printer told PN: "The smaller brand owners can’t live with these board prices because supermarkets won’t pay the increases. I’m not blaming the supermarkets but the squeeze comes on us and at the moment it’s a fight for survival."

PRICE RISES: THE LATEST
Smurfit Kappa Predicted that it would continue to recover corrugated pricing as it posted a 19% increase in first-half
pre-tax profits in early August
M-real Price rises of £45 a tonne to its coated and uncoated white-top kraftliner grades. Said it would start negotiations with customers over shorter payment terms
UPM Posted Q2 profit of €181m but said costs and price increases would continue into the second half of 2010