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Energy worries darken paper prospects

High gas prices are forcing some paper mills to reduce production despite good order books and strong demand for all grades for recycling, according to the BIR’s latest Mirror on the sector. The international recycling organisation says lower ocean freight costs are seen as the ‘only positive’.

Francisco Donoso, president of BIR’s paper division, notes that, as well as firm prices, stocks at yards have been low, supply tight and production levels high. ‘Prices for deinking grades have been increasing with every new month to levels never seen before, in some cases, he writes.

‘OCC prices have remained relatively stable following the large increases during the first quarter, also to historically high levels in many instances.’ Read RI’s latest market analysis on paper.

‘All mills have had to face the huge problem of elevated gas prices,’ he notes. These higher gas costs could affect paper industry profits to an even greater extent than the price increases on paper for recycling. Some paper mills have already decided to reduce production and take downtime despite good order books.

Covid-related lockdowns in China have damaged the country’s economy and reduced demand for both recycled pulp and board products, he adds, creating a major impact across India and South East Asia.

‘Many paper mills have been forced to take downtime because of the reduced demand, not only Chinese-owned companies but also regional players. As a result, paper for recycling demand has also been reduced and buyers have been implementing steep cuts in import prices despite opposition from exporters in Europe and the USA.’

An added factor, according to Donoso, is the additional duties are being imposed with pre-inspection in the country of origin for imports into Malaysia and Indonesia. ‘Ocean freight costs appear to be the only positive at present as these have fallen in almost all instances,’ he concludes.

Former president and fellow board member Jean-Luc Petithuguenin notes that the marketvfor lower grades market reached its peak at the beginning of summer but, since mid-July, there has been ‘a change of atmosphere’.

‘Finished product stocks are rising and some European papermakers are implementing machine downtime,’ he writes. ‘These slowdowns or stops are a response to a lack of orders, to elevated energy costs and even a lack of water in Italy, as well as to a desire to maintain reel prices.

‘Asia was almost entirely absent from the market in July, with sharply lower prices announced at the end of that month and in August. Selling prices for the lower grades will fall steeply in Europe this month given the low volumes ordered. It will not be possible to sell everything and our warehouse stocks may rise.’

And he adds a warning: ‘September and October will be important months, and the market should settle down. If there is a gas crisis, however, the market could become seriously complicated, starting with Germany.’

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