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Dive Brief:
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Bloomberg Index Services Ltd. is accepting customers for its recently launched commodity pricing index for corrugated boxes. The Bloomberg Corrugated Box Cost Index is designed to be a transparent tool for both box buyers and sellers.
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This index relies on an algorithm that considers eight inputs used in manufacturing and shipping boxes, including OCC costs, hourly wages and maintenance rates. Half of those inputs also have their own futures markets, said Ryan Fox, corrugated packaging market analyst at Bloomberg Intelligence, during a webinar Tuesday. “You can therefore use this as a calculator, of sorts, and create future scenarios.”
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This model serves as an alternative to existing fiber pricing indexes, such as a widely used 42-pound kraft linerboard index. “Bloomberg is presenting this as a neutral third party,” said Doug Larsen, corrugated market analyst at Green Markets, a Bloomberg company. “This concept provides a more holistic cost representation.”
Dive Insight:
Fiber manufacturing and sales have changed over the last several decades, Bloomberg representatives said during the webinar, but most pricing indexes haven’t kept up with the transformations. This new box pricing index accounts for such changes, they said.
Historically, many contracts in the fiber industry were tied to the price of 42-pound linerboard — weighing 42 pounds per 1,000 square feet — “but today, 42-pound is a very minor part of what’s used,” Larsen said. In addition, previous contracts were tied to pricing guidance from various trade publications. Those are among the many elements that have changed since the 1970s and 1980s, he said, also pointing to evolving methodologies for calculating box price movement.
Another change is that industry consolidation has altered individual companies’ market shares and business strategies. Now, “the industry as we know it is roughly 90% vertically integrated,” Fox said. Vertically integrated producers transfer paper materials manufactured at their own mills to their own converting facilities. Only about 5% to 10% of containerboard produced in the modern era heads into the open market, speakers said, and that proportion continues to shrink.
However, commonly used fiber pricing indexes, such as Fastmarkets RISI’s, still are linked to the open market. “It's a dilemma today in that if you're only considering open market, you’re not considering 90% of the market,” Larsen said, adding that it “doesn’t seem like the right thing to do.”