Business races ahead as prices soar

Trade continues to look bright after record levels at the start of the year.

The past four weeks will go into the history books of waste paper. Prices in Europe and the US rose throughout January into mid February and most packers believed they could go no further. The contrary happened and by mid-March prices for all grades reached historic levels.

For example, in early January mills in India were paying around US$ 185-US$ 190 cif for OCC and by March the price had reached US$ 300 cif. Over the past two months, most grades have improved by up to US$ 150. Key drivers include a shortage in supply due to low collection rates but also due to the availability of containers.

In Europe, mills were panicking and ready to pay almost any price to secure the required volume. Even so, there are fears that that prices might fall within two to three months as rapidly as they went up. But this is unlikely in April and freight rates seem to be stabilising.

Same in the US

Prices of old corrugated containers (OCC) and other grades of recovered paper in the US have also been on the rise since the beginning of the year. Although the escalation was held relatively in check during March, many suppliers are predicting that prices could skyrocket by summer.

The average national mill buying price of OCC increased from US$ 94 per short ton, FOB seller’s dock, in January, to US$ 113 in March, with traders reporting transactions as high as US$ 150 on the East Coast. However, traders believe prices have been held in check because:

• of difficulties moving tonnage off-shore due to an inadequate supply of shipping containers and other port delays
• a significant amount of scheduled maintenance downtime at containerboard mills, even as the mills are reporting strong order books.

Many traders believe that the end of maintenance downtime, coupled with strong export demand will increase overall fibre demand in the coming months. That demand, many anticipate, will be exacerbated by a strong post-pandemic economic recovery supercharged by the federal government’s US$ 1.9 trillion Covid relief package.

Funding package

‘There is not a lot of packaging, nor OCC in the pipeline, to supply a red-hot economy when things start to open up and people start to buy more things and take vacations,’ says a broker in the New York City area, whose assessment was common among US recovered paper suppliers. ‘Things could really heat up over the next four to five months.’

Executives of large publicly traded containerboard manufacturers, reporting on their companies’ financial performance in February, generally anticipate less robust OCC price increases of US$ 15 to US$ 20 per ton over the course of 2021.

While Wall Street has reacted favourably to the federal Covid relief package, some economists warn that another US$ 2 trillion on top of last year’s economic stimulus bills will increase federal government debt to almost US$ 30 trillion creating an unsustainable economic burden that will devalue the US dollar and could cause high inflation. Others argue that the record-low interest rates mean such spending can easily be accommodated.

Difficult logistics

Meanwhile, domestic mills have benefited from transportation issues that have curtailed ocean shipments, keeping more tonnage available in the States. However, traders said, truck driver shortages and railroad delays are making logistics difficult for US mills as well.

‘The difficulty in getting material loaded into sea containers and getting it on a boat is so extreme that many suppliers are having to make decisions whether to gamble on an OCC export order for US$ 220 delivered to the pier, or to take a domestic order at US$ 140 FOB,’ one broker lamented.