Embattled industry fears war

Worries for the strength of the sector this year were acute enough before the conflict in Iran and the wider Middle East added much deeper layers of concern.

The very big news has been, of course, the Iran war. At the time of writing, it is too early to know the impact on recovered fibre but the general sentiment and early signs are that consumer confidence will decline even further while higher energy costs will leave consumers with less disposable income.

Shipping lines have already announced emergency fuel surcharges. In the US, the range is between US$ 40 and US$ 300 per container. In addition, there are fuel surcharges of up to US$ 150 per container for inland rail shipments. 

Across Europe, the geopolitical development in the Middle East has rapidly shifted the outlook from cautious concern to acute volatility. As well as surcharges for deep sea shipping, road freight rates are rising.

These cost pressures are feeding directly into transaction prices and squeezing margins further. For an industry reliant on global export markets, particularly to regions such as India and Southeast Asia, any disruption to freight economics has immediate consequences.

WEAKER DEMAND

Broader implications are equally concerning. If the conflict drives inflation upward, demand for recycled paper products is likely to weaken further. Energy costs represent another critical pressure point. A renewed surge in prices would place mills in an increasingly difficult position.

Will mills accelerate purchasing and production in the short term to hedge against anticipated cost increases or will they adopt a more cautious stance in the face of uncertain demand?

Meanwhile, supply dynamics are tightening. Key export markets such as Türkiye and India are experiencing reduced material availability, driving up prices. This is no longer an issue confined to packaging grades; the impact is spreading across all paper grades, indicating a systemic shift rather than a localised imbalance.

LOWER COLLECTION

Back to the US, and the American Forest and Paper Association recently released the January 2026 numbers for paper shipments in the country. Packaging and specialty paper shipments were down only 1% against the year before. After all the mill closures in 2025, operating rates of the surviving mills would have been expected to rise but they are only in the low 80% range. Printing and writing paper production, meanwhile, continues to experience double digit declines.

There is also the same old story of low generation of recovered fibre with MRFs receiving fewer tonnes. While this is a typical phenomenon during every first quarter, this year seems worse. The grades showing increased demand are those that are generally in short supply: sorted office paper, coated book and other high grade paper types.

ADDED PAPERWORK

The UK paper recycling sector had entered 2026 under a cloud of uncertainty with many operators asking how feasible would profitability be this year. The introduction of the UK’s revised packaging export regulations has imposed a significant administrative and financial burden across the supply chain.

They are time-consuming and resource-intensive, offering little in the way of tangible value for brokers, suppliers or mills. For many participants, particularly smaller operators, the additional red tape has translated directly into higher operating costs without any corresponding revenue uplift.

The convergence of regulatory burden, geopolitical instability and cost inflation is reshaping the UK paper recycling landscape. What began as a year defined by compliance challenges has quickly evolved into a broader crisis of cost and confidence.

Should the situation in the Middle East escalate further, the industry may look back on the difficulties of January as relatively manageable.

The bottom line is continuing uncertainty for recovered paper for the balance of 2026. 

This market analysis was published in our latest issue >>