Packagers’ Gain for Year Is Wiped Out in Minutes on Price Slump

(Bloomberg) -- Packaging companies erased the year’s gains after a report that prices for containerboard plunged in January.

The S&P 500 Containers & Packaging Industry Index (S5CONP) is now down about 1% this year versus a 2.8% gain for S&P 500. The packaging sector, which had been higher this year by 1.7% through Friday, before the long U.S. holiday weekend, had ended 2019 on a high note. The index gained 25% in 2019 and was buoyed again this month, led by metal packager Ball Corp.

But containerboard just dented that performance, after industry journal Pulp & Paper Week (PPW) published January U.S. domestic kraftliner prices that unexpectedly fell $10 per ton. The index fell as much as 3% on Tuesday, led by WestRock Co., Packaging Corp. and International Paper Co., all of which were down at one point by 4% or more.

Goldman Sachs analyst Brian Maguire wrote in a note to clients that a price cut was expected by investors at “some point in 2020” but this early in the year was a surprise. Deutsche Bank and Citi analysts agreed that the Street wasn’t expecting a price cut right now.

Still, there might be a silver lining for the packaging industry, as paperboard prices seem to have remained solid, even as containerboard prices fell, according to Robert W Baird. January prices show a divergence in the two pricings, analyst Ghansham Panjabi wrote in a note. Paperboard prices were flat, which confirms stable prices and should be positive for Graphic Packaging Holding Co., even as containerboard fundamentals remain mixed at best. That’s negative for Greif, Inc., he said.

The next big catalysts for investors in the group include earnings from containerboard companies, starting at the end of this month, and box shipment data set to be released in February. The next month’s pricing update by PPW, due around mid-February, will also to be watched closely by investors for any sign of further price erosion.

To contact the reporter on this story: Aoyon Ashraf in Toronto at aashraf7@bloomberg.net

To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Scott Schnipper

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