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Pandemic poses paper supply problem

The Covid-19 crisis has presented the secondary paper markets with a bonus of higher demand and prices but also a supply challenge, according to BIR.

The global recycling organisation’s latest quarterly World Mirror sets out how a ‘highly unpredictable and scarcely believable’ pandemic impacted the entire world, starting in China and spreading to other parts of Asia before reaching Europe and then the rest of the world.

According to Jean-Luc Petithuguenin, president of BIR’s paper division, ‘The first consequence of Covid-19 was border closures in China, Europe, India, Indonesia and Pakistan, among many others. European countries did not take the virus seriously until March when it became their turn to implement lockdowns, both for their people and for their economies.’

Petithuguenin notes that, after a year of OCC surpluses and low prices, the economic slowdown led to a surge in domestic mills’ demand for the lower grades because the higher grades were no longer available.

‘Covid-19 boosted demand and prices, with one constraint being local supply,’ he says. ‘Indeed, with borders closing one after the other, mills wanted to make sure they could secure deliveries: we still have to produce packaging for pasta and for medicines.’

Demand question

With the slowdown meaning a decline in collection volumes, he wonders if production will meet demand.

‘Steady prices are anticipated for deinking grades and should be supported by those for OCC while we experience an easing market. Mills have high stocks and are expecting lower demand. The tissue sector is under pressure and needs recovered paper to feed its production. High-grade prices are also increasing where quality can be offered.’

Petithuguenin acknowledges that prices are high again and market fundamentals are back on track but not for the reasons anyone had hoped. ‘The real question is how we are going to face up to the economic boost once the virus has been tackled. Hopefully, prices will remain high owing to an increase in demand that will be sustained by the economic boom, and international trading will start over again. It is hard to be exact about what lies ahead but, without doubt, 2020 will be a difficult year for our industry.’

Freight rates

In the same report, former BIR president Ranjit Baxi notes that sea freight rates rose during the first quarter, with some increasing from around US$ 800 to US$ 2 500 as vessel capacity was withdrawn.

‘Everyone is waiting to see how the global markets will stabilise with the easing of lockdowns and the resumption of normal trade channels, with increased availability of container space at much-reduced freight rates compared to the high levels of the first quarter,’ he says.

Fellow division member Keith Trower from the UK’s Viridor Resource Management, points out that Chinese mills are back at around 50% production but not yet running at full capacity. ‘Projections of a void in packaging supply within China … motivated mills in other Asian countries to step up recovered paper purchases. However, a number of countries are in a state of enforced lockdown, thus limiting such possibilities.’

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