Strong start to the year continues

Major sporting events in Europe and celebrations in the US calendar are boosting demand for recovered fibre and this has been reflected in higher prices.

In the summer months, market forces seem to change. Typically, the uptick in demand for the supply chain for containerboard goes up in the spring as manufacturers anticipate an influx of orders from retailers.

In the US, for example, it is the build-up to several back-to-back consumer demand peaks: back-to-school shopping, Halloween, Thanksgiving and, of course, Christmas. In Europe, the major football championships and the Paris Olympics are playing a part.

Much of the containerboard for this additional demand is produced in Q2. With OCC and mixed paper representing the lion’s share of the feedstock needed for the extra containerboard and carton board, all eyes are on consumer confidence and how box manufacturers source their domestic supplies.

It seems that things have been rather bullish lately, following two consecutive years of corrugated box decline. The packaging analyst for Bank of America recently wrote an article entitled: ‘Packaging prices are set to rebound, ending America’s cardboard box recession…’

BREAKING POINT?

So what does this all have to do with recovered fibre in the US after months of lower supply and increased demand for most grades over the past year? It has resulted in a run-up of pricing where OCC prices have more than doubled, and mixed paper has more than tripled over the past year.

Eventually there is a breaking point and, when prices get too high, they will eventually fall. When prices get too low, more tonnes are landfilled, and prices will begin to rise again due to lower supply at MRFs. 

It appears prices for bulk grades have reached their peak for both domestic, as well as export markets. Price softening is potentially underway.

OCC prices drop first because, at the beginning of this cycle, higher quality grades such as DLK tend to be the preferred feedstock and those prices have not yet started to drop.  

PULP SUBSTITUTES

Rising pulp prices are forcing buyers to re-examine pulp substitutes. These grades experienced lower demand over the past few months, but domestic mills have increased their consumption of these high grades. De-inking grades remain steady in generation, consumption and pricing.

Some mills were stocking up their inventory for the 4 July holiday weekend and increased the premiums they were willing to pay. In the meantime, expect to see increased costs for container shipping from both the east and west coasts. 

Read the full market analysis in our upcoming issue >>

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