Surprising pricing mechanisms: a look at the containerboard market

In our last blog article, we explored product pricing strategy from a systemic perspective. This time, our Senior Consultant Nella Lehti dives deeper into one of its key dimensions, industry pricing rules. These rules reveal how the balance of supply and demand, production costs, and the pricing of substitute or value-added products drive price dynamics. Our example comes from the paper packaging industry, focusing on containerboard.

Containerboard is one of the most widely used packaging materials in the world. It is strong, lightweight, and versatile, and its price is influenced by a complex mix of factors. To illustrate this, we ran two simulation scenarios that shed light on how containerboard pricing really works.

The growth of e-commerce has made containerboard even more important. It is a cost-effective and sustainable material that ensures safe transport of goods. Its recyclability and renewable fibre base make it an environmentally friendly choice, which is increasingly vital as consumers and businesses demand sustainable solutions.

In recent years, containerboard prices have faltered across most markets. So what could drive prices upward again?

Our experts have identified three typical triggers for price increases.

1. Supply and demand balance

Like most commodities, containerboard prices are ultimately negotiated between sellers and buyers, and the side with stronger leverage sets the tone.

Prices tend to rise when:

• Sellers cannot keep up with demand because phones ring nonstop and inventories run low.
• Factories are running at full capacity.
• Order books are growing quickly.

In such a market, sellers can afford to test higher prices. At the same time, customers facing longer lead times and dwindling box inventories may accept price increases to avoid production delays.

2. Rising production costs

When prices fall below production costs for many producers, something must change. If too many players operate at a loss, the market corrects itself either through price increases or temporary shutdowns.

Once enough producers refuse new orders at unprofitable prices, the market stabilises or begins to rise again. This mechanism helps ensure long-term balance and keeps even the most efficient producers profitable.

3. Substitution effects

Changes in the price of competing materials can also shift containerboard prices. If alternative packaging products become more expensive, or imported containerboard prices rise, demand can swing back to domestic producers.

For instance:

• If imported containerboard becomes pricier, buyers may switch to local suppliers.
• Domestic producers can then raise prices even before local demand significantly increases.

Similarly, export opportunities or currency changes can make exports more profitable, tightening domestic supply and lifting prices at home.

Simulating the market

At STE Analytics, we use simulation models to analyse these dynamics in detail. Our models capture both short-term fluctuations and long-term structural trends, helping clients understand how variables interact across the entire system, from producers to retailers and end users.

These dynamic simulations allow us to test “what-if” scenarios, revealing the most effective decisions in complex and uncertain environments.

Scenario 1: lower production costs

Intuitively, lower production costs should lead to lower prices, but not always.

In our first scenario, reduced production costs actually triggered a price increase:

• Producers enjoyed higher margins, especially in export markets.
• Export volumes grew, boosting domestic capacity utilisation.
• Stronger utilisation tightened supply and pushed prices upward.

Even when costs fall, market dynamics can still lift prices.

Scenario 2: lower-than-expected demand

Weaker demand does not always mean lower prices. If supply adjusts smoothly and production capacity is not overextended, prices can remain steady or even strengthen later.

Lower demand can calm production schedules, preventing overstocking and excessive capacity expansion. Over time, this can lead to a tighter market and firmer prices.

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Industry experience that translates across markets

We are experts in the pulp, paper, and packaging industry, offering forecasting, risk management, and strategic decision support. STE Analytics holds extensive experience working with clients across many industries. While this example focuses on packaging, the same structural mechanisms often explain price movements in many other markets we have modelled.

Let us discuss how our approach could help you anticipate and navigate pricing behaviour in your own sector!