APRIL ’08 Vol 4 No 2
CARTON TRENDS
QUARTERLY SURVEY OF TRENDS IN THE CARTONS INDUSTRY
HIGHLIGHTS
· The survey delivered mixed messages about the state of trade during the past quarter While several of the negative balances were lower than forecast, the expectations of respondents for the quarter were largely disappointed.
· All of the respondents are working below capacity and the highest percentage since the survey began reported order books worse than normal for the time of the year.
· Positive balances for selling prices both in the past quarter and forecast for the coming three months hide the fact that the increases were generally insufficient to cover the range of costs that increased last quarter or are forecast to rise this quarter.
· The forecast of a return to a positive balance for margins on sales largely depends on an increase in volumes, perhaps to be won from other respondents, combined with continuing to work smarter.
· While there is a negative balance for capital expenditure on plant and machinery, several respondents intend to replace litho presses during the period primarily to make efficiency gains rather than to add to capacity.
· The respondents who export agree that export orders are better than normal for the time of the year and that export prospects will improve over the next three months.
VOLUMES AND MARGINS FORECAST TO RISE SPRING 2008 COMPARED WITH SPRING LAST YEAR
– but rising costs and lower volumes take most of the shine off last quarter
The survey delivers mixed messages about the state of the carton sector during the past quarter (December-February) and about prospects for the coming three months (March-May). If anything, the emphasis is on negative aspects as several new, unwanted records were established.
Although the negative balance forecast for the general state of the trade was –46 compared with a forecast of –65, only one of the nine respondents said that the quarter was better than they had forecast. The other eight said that the quarter was either much as they had forecast (four) or was worse (four). For the coming three months, a balance of +27 is predicted, considerably lower than the +61 forecast in April 2007. Even so, eight of the respondents believe that the state of the trade, normally interpreted as a question about volumes, will be better in spring 2008 than it was in spring 2007.
For only the second time in the history of the survey – the other time was in April 2006 – 100% of firms were working below capacity. Moreover, 53% of respondents said that their
Carton Trends
THE INDUSTRY AT A GLANCE
Trends over the past 3 months and expectations for the next 3 months
Jul 06 / Oct 06 / Jan 07 / Apr 07 / Jul07 / Oct
07 / Jan
08 / Apr
08
1 General state of the trade*
past 3 months
next 3 months / –23
39 / 20
83 / 90
–62 / 16
61 / –21
72 / 95
87 / 94
–65 / –46
27
2 Firms working below capacity (%) / 94 / 48 / 45 / 82 / 89 / 48 / 47 / 100
3 State of order books**
better than normal for time of year
normal
worse than normal / 49
12
39 / 20
64
16 / 64
36
0 / 22
60
18 / 47
17
36 / 31
30
39 / 72
28
0 / 18
29
53
4 Numbers employed*
past 3 months
next 3 months / –59
–34 / –80
–30 / –36
6 / –39
–2 / –87
–9 / 4
0 / –20
–6 / –9
–3
5 Volume of orders (domestic)*
past 3 months
next 3 months / –6
29 / 36
98 / 77
–65 / –12
86 / –27
87 / 81
89 / 81
–63 / –52
22
6 Volume of output*
past 3 months
next 3 months / –8
29 / 36
98 / 100
–65 / –12
86 / –27
99 / 81
89 / 99
–63 / –52
22
7 Average prices (domestic)*
past 3 months
next 3 months / –30
–19 / –19
–18 / 50
51 / 45
17 / 11
78 / 84
44 / 75
3 / 13
34
8 Cost of paper & board*
past 3 months
next 3 months / 61
15 / 21
40 / 13
48 / 25
14 / 44
78 / 61
39 / 22
7 / 74
87
9 Work-in-progress*
past 3 months
next 3 months / –8
22 / 29
98 / 76
–68 / –27
40 / –18
55 / 60
70 / 36
–54 / –45
39
10 Margins on sales*
past 3 months
next 3 months / –68
20 / –21
–5 / 50
–3 / 35
–8 / –63
62 / 73
84 / 45
–37 / –4
16
11 Debtor days (average number of days) past 3 months / 56 / 57 / 56 / 57 / 57 / 59 / 57 / 60
12 Capital expenditure*
new buildings
alterations
plant & machinery / 49
42
-65 / 40
6
14 / 0
6
–5 / 0
0
1 / 0
0
40 / 0
0
47 / –36
0
23 / 0
0
–37
13 State of export orders**
better than normal for time of year
normal
worse than normal / 0
100
0 / 68
32
0 / 78
22
0 / 29
71
0 / 35
57
8 / 32
68
0 / 38
62
0 / 100
0
0
14 Export prospects for next 3 months**
will improve
stay about the same
worsen / 7
93
0 / 0
100
0 / 78
22
0 / 29
71
0 / 91
0
9 / 89
11
0 / 38
62
0 / 100
0
0
Key: * balance = % of respondents reporting increase/more/improved less % of respondents reporting decrease/less/worsen. For example, if 48% said that the general state of the trade improved, 32% that it stayed the same and 20% that it worsened, the balance is +28. ** % of respondents.
order books were worse than normal for the time of the year, a record high figure. This may explain why, according to one large respondent, a price war has broken out among the larger participants trying to secure, or gain, market share. From the point of view of the sector overall, it is disappointing that selling prices should be under downward pressure largely from within rather than pressure from outside. Any downward pressure on selling prices would be worrying at a time when costs are increasing.
The negative balances for volumes of orders and output were slightly lower than forecast, both at –52 compared with forecasts of –63. For the next quarter, and reflecting normal seasonal patterns, a balance of +22 is forecast for both. In contrast, the negative balance for employment of –9 was slightly higher than the –6 forecast and included one sizeable round of redundancies. A further negative balance of –3 is predicted for the coming three months.
Although a balance of +13 was recorded for selling prices compared with a forecast of +3 last quarter, the figure hides the fact that for most respondents the increase in selling prices did not fully compensate for the increases in costs that were experienced. The same can be said about the coming three months. A balance of +34 may look encouraging, but for the majority in the survey, the increase will again fall short of covering all the anticipated rises in costs. How these positive balances reconcile with the notion of a price war is unclear. Either there will not be one, or those accused of lowering prices are not admitting to it in the survey.
The balance for the cost of paper and board last quarter of +74 was a record high and appeared to catch respondents off guard, as a balance of just +7 had been forecast. The balance forecast for the coming quarter of +87 is also a record. The increasing cost of board is, for some, being exacerbated by the weakness of sterling against the euro. Apart from paper and board costs rising, other consumables and other costs have either increased last quarter or are due to rise in the coming three months. In addition, all of the respondents expect to pay a wage settlement before the end of the next quarter.
With selling prices not fully covering rising costs and with price competition increasing, it appears perverse that the balance for margins on sales of –4 was lower than the –37 forecast and is predicted to move back into positive territory next quarter, with a balance of +16. Six of the nine respondents believe that they can improve margins compared with last spring against one who says they will worsen. Respondents say that a combination of generally higher volumes and working smarter will deliver these improved margins. However, being a carton printer is not a win-win situation; somebody somewhere is going to be disappointed.
In the past two years debtor days have slowly crept up from 55 days to 60 days. One respondent commented that he had been obliged to give customers more time to pay if he was to hold on to their account. Unlike the rest of the industry, bad debts do not appear to feature on the radar, at least for the moment.
Although the balance for capital expenditure on plant and machinery has swung from +23 to –37 in the course of just three months, there will be no lack of capital spending in the next year. Several respondents intend to replace litho presses during the period primarily to make efficiency gains rather than to add to capacity.
For the first time in the history of the survey, the respondents who export more than 5% of their turnover agree that export orders are better than normal for the time of the year and that export prospects will improve over the next three months. As the weakness of sterling, especially against the euro, has added to the cost of imports, it is benefiting those who export to Europe and beyond.
Basis of the survey: The survey was carried out by telephone during the period 3-14 March 2008. The March survey consists of nine companies employing 4,225 with a turnover of £495.8 million. All figures, except where stated, are percentages based on a sample weighted in accordance with turnover.
Carton Trends has been prepared for BPIF Cartons by David Ross, Ross Economics and Editorial Services Ltd. He can be contacted at .