North American Paper Packaging Price Methodology
RISI publishes two separate price estimates for the North American packaging paper and paperboard markets. One, which traditionally has been published in Paper Packaging Monitor, reports a single point estimate for the prices of major packaging grades. The other, traditionally published in Pulp & Paper Week, reports a range estimate (high and low, which are occasionally the same) within which the large majority of transactions are believed to have occurred. This document describes the methodology used for these price estimates—herein referred to as the Point Estimate (PE) and the Range Estimate (RE).
The PE and RE surveys were developed independently when the respective publications were parts of different companies. The results from the two surveys were merged between 2003 and 2005, and the two published price estimates are now tied directly to each other. Going forward, news editors and economists will share and compare information regarding survey results, thus increasing the amount of information used to determine both the PE and the RE. This sharing of information will be limited, however, in cases in which a confidential relationship exists between the surveyor and a respondent. The RE survey is conducted by news editors associated with Pulp & Paper Week. The PE is set by economists associated with Paper Packaging Monitor, based on all of the information collected as part of the RE survey, plus additional information that may be available to the economists.
Determination of Point Estimates and Range Estimates
All price discovery methods, no matter how statistically rigorous they claim to be, run the risk of being "gamed" or undermined by survey responders, through means such as selective reporting of transactions or misreporting of prices. Even a process that is based on a weighted average of actual invoices can be manipulated if respondents report transactions selectively (that is, non-randomly). Markets for packaging grades may lack transparency because both sellers and buyers (independent converters) have a vested interest in not reporting declining prices because of industry contracts with formulas linking converted product prices to published paper and paperboard prices.
RISI's price estimation methodology addresses this problem in two ways. First, prices are collected from both buyers and sellers in an attempt to balance out potential bias from respondents. Second, our methodology allows the news editor or economist who is doing the survey (hereafter, "the surveyor") a small degree of latitude to supplement the survey results with other information in order to arrive at the price that best represents market conditions. The surveyor, for example, can use his or her best judgment in assigning more weight to responses from those survey participants who have been the most reliable sources for pricing in the past. That the surveyor is allowed judgmental latitude in estimating prices is an especially important point to note for the PE survey—point estimates are not arrived at using a fixed calculation or weighting scheme. (Larger transactions are given more weight than are smaller ones, however, which is consistent with the concept of a weighted average.) Application of expert judgment based on years of reporting on and studying these markets has been one of the keys to achieving the quality and acceptance of RISI's price estimates.
Where survey information is limited due to small size of the market, or when there are substantial conflicts in the information provided by survey respondents, the surveyor may factor non-survey information into the estimate. Such information can include current supply and demand fundamentals, historical relationships between product prices over time, and information as reported by companies to the media or in financial reports.
Revisions to past prices are made infrequently, in the event of new information becoming available that indicates a major divergence between published prices and estimated market prices. In the case of a retroactive rebate of a price increase, prices would be reduced to their previous level in the current month, but in most cases would not be revised or adjusted retroactively.
Survey Procedure
Upon joining the survey pool, a respondent is asked to disclose the specification of the products that they actively buy or sell, the average monthly volumes involved, and the nature of the transactions that they engage in (spot or contract, indexed or open market). This information is used by the surveyor to put the respondent's monthly responses into perspective, and is updated periodically.
Most contacts with survey respondents are made by phone. Some are made by email. Participants in the survey include both buyers and sellers of paper. Agents and brokers are included, in most cases as sellers.
The amount and type of information that a respondent provides each month varies across individuals and companies. In the ideal case, the respondent would provide a number of prices for various transactions that occurred during the month, along with the volumes involved in each and any special terms. Most respondents, however, report a single average number or a price range for the month for each grade of paper that they buy or sell. A small minority will report only changes in price level from the past month's value. All of these responses will be taken into consideration by the surveyor.
The mix of buyers and sellers varies by product, but an effort is made to adequately cover both sides of the market. The number of respondents varies by product but is always sufficient to determine a representative price for the month.
Key Differences in Transaction Specifications
"Transaction" price estimates reflect regular transactions between mills (and in some cases brokers) and independent converters on regular size orders. The survey excludes internal transfer prices on containerboard tonnage transferred by a producer to its own box plants or swapped with other producers to reduce freight costs. "List" prices are at higher levels, but they move in tandem with transaction prices (and developed from earlier, discontinued transaction price series that became widely used as an industry reference prices). All prices include delivery costs and most are for standard quality virgin-fiber based packaging board and paper (with the exception of recycled boxboard grades). Containerboard price estimates exclude nonstandard roll widths ("trim rolls") and recycled grades.
Most prices are for delivery in the eastern U.S., but containerboard prices are also shown for "west of the Rockies." Prices vary by region because of shipping distance and various competitive factors (such as a high concentration of producers or converters in a region). The Eastern U.S. price estimate represents a composite of prices in the Northeast, Southeast, Midwest, and South Central sections of the country. Price estimates are before regular customer-specific discounts or rebates for volume or fidelity. An asterisk is used to denote a higher than normal level of discounting from the published prices, indicating the price is under pressure and may decline in the future.
Other Transaction Specifications
Arm's-length transactions: Only transactions between non-affiliated parties are included in the survey. To be included in the survey, a transaction must be conducted at "arm's length." Prices for internal transfers between units of a company are excluded from the survey as well as prices on trades or swaps between producers.
First-quality tonnage: Prices are for all first quality tonnage sold in normal trim roll sizes.
Distressed transactions: Distressed or unusual transactions are not included in the price.
Prices for orders in current month: Price estimates for a given month reflect orders placed in that month. Shipment may occur in a future month. Thus, for a given month, price estimates reflect the orders placed in that month, not necessarily the shipments in that month.
Terms of payment: Price estimates assume normal and customary payment terms.
Delivery: Prices are delivered prices within a standard delivery zone. Any surcharges that a customer pays for additional freight because of his location or drop-off requirements are not reflected in the estimated price.
Circularity
RISI price estimates are used within the industry for many purposes, including setting prices for contract transactions in which both parties choose to tie the transaction to an index. RISI is aware that transactions in the market may be tied directly to its the price estimates. In theory, this raises concerns about circularity of the survey process.
For this reason, RISI's policy is to survey only for transactions that are conducted in the open market, i.e., that are not tied to the price index itself. Some respondents may be involved in both open market and "indexed" transactions. In these cases, every attempt is made to collect information only for the open market transactions.
Auditing
Because they involve confidential sources and require the application of the judgment of the surveyor, the surveys are not audited by an outside party. RISI has instituted internal management controls to check on survey methodology and accuracy.
Non-Disclosure of Information
All RISI price surveys are confidential. Names of individuals and companies participating in the survey are never disclosed to the public or to other survey participants. RISI's policy is to neither confirm nor deny either directly or indirectly the participation of any individual or company at any time. Confidential or proprietary information that is collected as part of the survey process, including prices reported by individual survey participants, is not shared with the public or with other survey participants.
Absence of Financial Interest
RISI recognizes that in the normal conduct of their jobs, its employees may have access to confidential or proprietary information regarding companies or markets. RISI prohibits its employees who conduct price surveys from having a financial interest in companies whose values are directly and substantially affected by prices they report. Excluded from this prohibition are holdings in mutual funds or other diversified portfolios that might include financial assets related to such companies. For example, if an employee is involved in a price survey for newsprint, he or she may not directly hold financial instruments issued by newsprint producers or newspapers, because the price of newsprint substantially affects the values of both the producing and the consuming companies. The employee however could invest in mutual funds or other diversified financial instruments that include some of the above-described companies. Also prohibited is a financial interest in any financial instrument that derives its value substantially from the reported prices of products included in the survey.
Commercial Usage
RISI price estimates are copyrighted information. Any commercial use, including hedging or settling of contracts or trades, requires a subscription. For more information, please contact info@risiinfo.com.
Disclaimer of Warranty
Although RISI collects information from sources who are believed to be reliable, RISI does not warrant or guarantee the accuracy or completeness of its price estimates. Actual transaction prices will often vary from the estimated level.
APPENDIX: Physical Specifications
Kraft linerboard
Basis weight: 42 lb/1,000 ft2 (175 g+)
Reels
Fiber furnish: mainly unbleached kraft/some recycled fiber
Corrugating medium
Basis weight: 26 lb/1,000 ft2 (125 g)
Reels
Fiber furnish: mainly semichemical/some recycled fiber
High performance linerboard
Basis weight: 35?36 lb/1,000 ft2 (170-175 g)
Reels
Fiber furnish: mainly unbleached kraft/some recycled fiber
(offers higher compression strength than standard kraft linerboard)
White top linerboard
Basis weight 42 lb/1,000 ft2 (175 g+)
Reels
Fiber furnish: unbleached/bleached kraft (full white surface coverage)
Extensible multiwall sack (high tensile strength paper)
Basis weight: 50 lb/3,000 ft2 (80 g/m2)
Reels
Fiber furnish: unbleached kraft
Natural multiwall sack
Basis weight: 50 lb/3,000 ft2 (80 g/m2)
Reels
Fiber furnish: unbleached kraft
Unbleached grocery bag
Basis weight: 70 lb/3,000 ft2 (114 g/m2) and 30 lb/3,000 ft2 (50 g/m2)
Reels
Fiber furnish: unbleached kraft
Bleached grocery bag
Basis weight: 30 lb/3,000 ft2 (50g/m2)
Brightness: 82
Reels
Fiber furnish: bleached kraft
Bleached kraft board (Solid bleached sulfate or SBS)
Folding carton grade
Caliper: 16 pt (0.16 inches thickness); 406 microns
Basis weight: 182?217 lb/3,000 ft2 or 60?72 lb/1,000 ft2 (301?359 g/m2)
Brightness: 84?87.5 GE, depending on producer
Reels
Coated one side (CIS)
Fiber furnish: bleached kraft pulp
Unbleached kraft board (Coated unbleached kraft board or CUK)
Folding carton grade
Caliper: 20-pt (0.20 inches thickness); 500 microns
Basis weight: 80 lb/1,000 ft2 (390 g/m2)
Brightness: 80
Reels
Coated one side (CIS)
Fiber furnish: unbleached kraft pulp
Recycled folding boxboard (Clay-coated news)
Caliper: 20-pt; 500 microns
Basis weight: 82 lb/1,000 ft2 (400 g/m2)
Brightness: 80
Reels
Coated one side (C1S)
Fiber furnish: recycled fiber
Recycled folding boxboard (Bending chipboard)
Caliper: 20-pt; 500 microns
Basis weight: 80 lb/1,000 ft2 (390 g/m2)
Reels
Uncoated
Fiber furnish: recycled fiber