No real respite from falling prices

This report in the previous issue wondered if the gloom across the industry, as indicated by prices for recovered fibre, had bottomed out. It now appears that it has not, most particularly in US domestic and export markets.

In Europe, in the middle of Q4, at least, prices driven largely by South East Asian demand in Vietnam, Thailand and Malaysia have picked up as mills look to re-stock. A surge in Indian demand at the beginning of Q4 has also helped. What European traders have seen is paper mills successfully forcing the price down by surviving on very low stocks of recovered paper which was facilitated by the rapid onslaught of a global recession.

US SPIRAL

In the US, though, the downward spiral on pricing of recovered fibre continues as October saw more declines in virtually all grades, especially bulk grades such as OCC. The soft demand affects both domestic and export demand and prices, generally, are at three-year lows.

Domestic demand is down due to softness in the US economy and retailers being over-conservative in building retail inventories. Meanwhile, recovered fibre exports from the USA have fallen due to a slowdown in India, as well as China lowering its demand for packaging due to workers staying at home for Covid-related reasons.

Regardless of pricing for exported recovered fibre or the domestic market in North America, the same commodity is down by as much as US$150 per tonne on a year ago. The value of OCC is only slightly more than the cost of baling it and, for domestic mixed paper, sellers cannot even get their baling costs out of the selling price. Some attribute part of the slowdown in US exports to Asian mills securing lower prices from Europe. Most buyers and sellers don’t see a major correction anytime soon.

HITTING RECYCLERS

A similar gloomy note was struck by BIR’s senior paper representative Francisco Donoso at the organisation’s convention in Dubai in October. Noting that mills worldwide were struggling with the consequences of rocketing energy prices, he said they could only respond by cutting the prices they pay for recovered paper, thereby hitting the recyclers.

Donoso said prices for OCC in Europe had fallen by between 80% and 90% in recent months, amid extremely low demand all around the world with high stocks at paper mills.

‘The high cost of energy – and specifically gas – is one of the reasons for this as it has become by far the largest production cost for mills. They cannot pass on this cost in their sales prices because demand for their products is also low owing to the financial crisis, and neither can they reduce their energy costs. Therefore, the only cost they can manage is what they pay for their raw material.’

In the USA, he added, prices for mixed paper had reached zero dollars in some locations and thousands of tonnes were being landfilled.

LOOKING TO NEIGHBOURS

US merchants are thus left sitting on significant stocks of material and reluctant to sell until the price bounces back. If there is any bright spot for US exports, it is Mexico although growth in recent months is so slight it hardly moves the needle and does not come close to making up the shortfall from the decline in exports to India and Southeast Asia.

Added to this, Chinese imports of recovered paper pulp from their neighbours have increased as it is now a better price than domestic fibre. China is still in the grip of Covid and mills are hedging their bets with the threat of further lockdowns. This has led to the South East Asian market raiding Europe whilst the price is low, resulting in a small price spike for November.

Shipping costs, favourable exchange rates and the spike in the national PERN export support scheme are all factors said to be working in the UK’s favour. Mainland Europe’s demand for UK fibre remains lukewarm but there are some pockets of demand, particularly for mixed.