Containerboard sector feeling pandemic-induced ‘hangover’

As containerboard shipping declined, industry operating rates fell, but margins didn’t take as much of a hit as they did in the Great Recession of 2007-2009, Rager said. Due to the high cost of operating in the sector, large containerboard facilities have closed in recent years.

From a demand perspective, Rager said the industry is picking up. Box shipments were down 5% last year, but Fastmarkets is predicting a 2% increase this year — a sign of recovery, although it will take until 2026 with 3% to 4% growth to reach the pre-pandemic long-term trend level.

During this recession period, industry leaders turn to acquisitions since there are limited opportunities for growth otherwise, Rager said. The North American containerboard industry is highly concentrated now, but there are international opportunities for acquisitions, he said, referencing the Dublin-based Smurfit Kappa acquisition of WestRock, located in Sandy Springs, Georgia, which will make the paper company the largest in the world.

The lumber side of the forest products industry is also affected, Rager said, adding that if housing interest rates — 7.17% on average for 30-year loans as of May 29, according to Bankrate — don’t decline as projected this year, it will continue to “weigh on the affordability of housing.”

“It really is all about interest rates,” he said. “Of course, there’s a lot of geopolitical things — the war in Ukraine, the environment and we’ve got elections coming up. All those things are super important, but the number one thing that sort of keeps my economists awake at night is what is going to happen with interest rates.”

Housing starts in the United States are projected to be about 1.4 million this year, of which about 1 million will be single-family homes and about 400,000 will be multifamily projects, Rager said. Fastmarkets projects 1.5 million builds next year, up about 8% for 2025.

“We are more optimistic going into next year,” he said. “We do sort of see a steady improvement of interest rates, but if you’re holding out to get another 3 or 3.5% loan … we don’t see that coming back anytime soon.”

Rager said the United States has “chronic” underbuilding of new residences. Potential homebuyers are living with their parents or roommates longer than they would have in a different economy, he said. Still, first-time homebuyers make up a significant portion of purchases, about 30%.

“A lot of people ask that question of, is that sort of starter home market gone? Has it changed forever? Our answer would be ‘maybe.’ It’s not completely gone but it may be changed forever,” he said.