Recovered paper: uncertain prospects after summer lull

Lower collection levels during the holiday months are typical but traders are unsure whether supply and demand will pick up with mills said to be subdued across several key regions.

In the north American market, the summer months have seen certainly less generation of recovered paper. This happens every year, of course, with more people on holiday, especially those who participate in recycling. And as they are more likely to be spending their hard-earned cash on flights, hotels or road trips, they are not buying physical goods, meaning fewer corrugated boxes and other types of paper going through the supply chain.

In the US at least, there is no reason to think 2024 has been any different. As the summer winds down, fibre generation usually gets back to normal. 

What are the implications? Over the past several months, prices for OCC soared due to a mismatch between supply and demand for fibre. Low generation is certainly one of the major factors, combined with some uptick in demand for finished packaging.

Prices of OCC as well as other grades have roughly doubled on a per tonne basis versus a year ago. That is a bitter pill for the paper industry to swallow. But the price eventually plateaus and starts to either flatten out or come down, as is happening now.

US EXPORTS DOWN

But what of the export market? The US Census Bureau recently released its data for recovered fibre sent out of the USA from January until June 2024. For all grades, exporters shipped just short of 6.6 million tons during the first six months of 2024 versus slightly over 7.7 million tons during the same six-month period last year, representing about a 15% year-on-year decline.

The decline was driven by Thailand, India, and Vietnam although Canada and Malaysia took more from the USA than they did in the same period in 2023.

This is no doubt bad news for exporters and shipping lines but, conversely, a silver lining for USA’s domestic paper mills that use recovered fibre. They may have had to pay double that which the domestic mills paid a year ago for the same grades. But if export tonnages had increased instead of decreasing, there would be even less for domestic mills to chase so prices could even have tripled. 

LOWER COLLECTIONS?

Since OCC typically represents 65% to 80% of all recovered fibre collected in the USA, it has been fascinating to see Bloomberg’s first venture into assessing the percentage of OCC recovered for recycling in the full year of 2023. Bloomberg estimates it to be 66%, much lower than the 90+% rate that the paper industry has reported during the past few years.  

Another trend affecting the US market is higher shipping rates. Shipping lines have limited space, especially to the SE Asia and India markets, and have cancelled bookings in some cases. More price hikes are expected in the coming months.

STATIC EUROPE

In Europe, prices of recovered paper have not moved much during the summer months. Cardboard has been under some pressure and the market believes the price for this grade will fall slightly. The market for deinking paper appears to be robust and prices appear to be holding up. Low collection volumes continued – or even dropped further – during the summer months.

Middle and better varieties were still in good demand while exports to the Far East remain at a low level. Despite this, available recovered paper found a home, with Germany taking the lead.

The German market has been and continues to be strong. In the case of graphic paper, the current prices for deinking paper represent a significantly increased cost item, which is apparently difficult to pass on in the new paper from these factories.