But administrators for the carton printer have also pointed to an issue that has, over the last year, reached crisis proportions for the cartons sector: raw materials prices.

Costs for board have rapidly risen over the last year as mills have pushed through three rounds of increases. Including the current third round of increases, carton printers contacted by Packaging News estimated the rise in board costs since September 2009 at between 20% and 35%, depending on grades.

On top of the high prices, lead times for ordering board have moved from three to six weeks to three months or more – sources suggest that in extreme cases, some grades are being sold now for delivery in March or April next year. Moreover, mills are reported to be imposing quotas on both individual companies and geographic regions. As a result, carton manufacturers are having to push for price increases at the same time as telling customers to plan their ordering months ahead of normal schedules.

The situation is putting carton manufacturers, whose margins are often in the low single figures, already under strain. Many are managing to pass on the increased costs to customers; but others, typically the smaller players, report that they are struggling not only with pricing, but with board supply.

Cause for concern
Views differ on how serious the situation is. BPIF cartons president John Monks describes the current situation as "a cause for concern, but not for panic". "It’s a difficult scenario for cartonmakers to manage, but the majority will, provided customers cut them some slack," he says.

Others believe that more businesses could fail as a result of the pricing situation and argue that carton printers must pass the price rises on if the industry is to avoid wider problems. One source at a large carton printer says: "Business failure would have a snowball effect in that credit insurance on the converting sector would become an even bigger issue for suppliers.

Some suppliers are looking to shorten payment terms already, improving their own cashflow and reducing their credit exposure; this will place even greater pressure on converters."

Another aspect of the quotas is that, according to Carton Edge managing director and BPIF Cartons general manager Neal Whipp, it restricts development of new products. "At a time when the environmental benefits of carton packaging are being increasingly appreciated, it is frustrating to see growth jeopardised by restrictions imposed by mills," he says.

The board mills cite a number of reasons for the steep hikes. The earthquake in Chile in February and strikes at Scandinavian mills and docks in the spring tightened pulp supply, production and distribution. They have also experienced persistent increases in their own input costs, for products such as energy and pulp, while demand has also greatly improved over the last year.

But perhaps most important are the mill shut-downs that have marked the entire paper industry over the past three years. Estimates are that around 765,000 tonnes of cartonboard capacity have come out of the market (see box) – around 15% of European capacity – leading to the supply shortages that are making life difficult for converters.

The shutdowns, the mills argue, are a response to historically low pricing of their products and, consequently, low profitability. Indeed, financial results from producers including M-real and Stora Enso have shown that they have spent much of the last three years in the financial doldrums.

Domestic dilemma
In the UK, Iggesund closed a machine at its Workington mill in December 2009 and, like other producers, the company has been pushing prices up this year. Guy Mallinson, business director for packaging, warns that carton printers and end users must be prepared to pay more if cartonboard production is to stay in Europe.

"In the long run, if this sector of the paper and board industry is not more consistently profitable, there will be no longer any investment in Europe. Suppliers and boxmakers in Europe will be exclusively dependent on imports," he says.

Looking ahead, some argue that more price increases will come in the first half of 2011 if demand levels remain high. If demand weakens, however, the mills could take what one procurement specialist describes as "price-preserving downtime". "Having gone through such cost in reducing capacity to harden the market, they won’t surrender their strong market position lightly," the source says.

Elsewhere, Whipp says that there is a "growing recognition" among packaging buyers of the problems facing their suppliers; and of the benefits of that supply base being strong. He also points out that while long-term restrictions on supply could encourage buyers to switch to other materials, the carton sector is not alone in facing price pressure. "Increases in polymer costs and poor availability of various plastic grades emphasise that supply problems are not restricted to the carton industry," he says.