Paper update: growing global demand challenges recyclers

Packaging trends continue to favour the recovered sector but securing scrap fibre remains an issue.

Covid, the war in Ukraine, the growing cost-of-living crisis and disrupted supply chains continue to challenge the market. It makes the basic rules of supply and demand more difficult to predict as sellers of recovered fibre continue to benefit from unprecedented sustained high prices across all grades. Quite simply, global supply chains remain out of kilter.

Not surprisingly, global mill buyers have been trying to reduce the price of recovered fibre since the beginning of the year. Reports from Asia indicate end users sitting on high stocks. China continues to dictate global demand but traders have concerns over the effect of the West’s inflation figures on peak season order books, especially for Christmas.

This seems to be influencing the Indian market which is using the opportunity to try to force down prices. Overall, Asian prices for RCP have fallen but favourable exchange rates and freight discounts have contributed to stable prices in Europe.

Market sources in France said shortages of deinking and higher recovered paper grades had resulted in significant price increases while demand from German paper mills was said to be strong.

What we cannot escape from, though, is not being able to meet demand. As we enter the traditional summer slowdown, the trend would appear to be a downward pressure on prices and most forecasters predict reductions for recovered fibre in Q3.

US perspective

For most of 2022, OCC, the foundation of the USA recovered paper market, had been declining in price. At the beginning of June, though, it appeared the market was finally in balance with supply and demand being about equal.  

On the one hand, record e-commerce sales have driven box demand but there has not been a corresponding rise in recycling rates. The Recycling Partnership reports that 60% of residential corrugated boxes end up in the landfill, so the majority of these boxes are not finding their way back to paper mills.

On the other hand, we’ve seen many challenging economic factors: a doubling of petrol prices from a year earlier, spiralling inflation costs for virtually every consumer category and acute labour shortages.

With the media talking about recession, the domino effect is low consumer confidence, even higher fuel prices and inflation leading to slower retail sales, higher inventories and a slowdown in orders. The net result: paper mills taking more downtime to match their slowing orders.