Diverting fibre from China to its Asian neighbours is no longer making business sense for Western exporters struggling to find viable markets.
In the first quarter of 2019, exports to countries such as Indonesia, India, Taiwan, and Vietnam were booming. Chinese mills were no longer buying or importing their normal volumes so traders had switched to neighbouring Asian countries. Because of this, prices had been going down slowly week-by-week.
But April marked a significant turning point – and a further deterioration. Not only was China still not buying but the other Asian countries also cut their demand, causing prices to drop yet further. The outlook does not look good.
Paper from the US is being dumped at such low prices that the rates going into May may be even lower. All in all, this is not a very positive situation for those trading in paper. Freight rates are said to be moving up in May by around US$ 50 per container.
The average prices paid by US mills for recovered paper at the beginning of April plunged 13% compared to the final week of March, according to buyers and sellers reporting to The Paper Stock Report. It was widely anticipated that pricing could continue to decline further as the month went on. Old corrugated containers (OCC) prices nationwide fell 11%, to a formal national average mill buying price of US$ 67.08 per ton, with a considerable amount of tonnage moving at much lower levels.
Some mill groups in March were reportedly so loaded with OCC they were moving contract tonnage off to other companies at prices that ranged from US$ 50 per ton to ‘literally giving it away free’ because they didn’t have room to store it.
That activity was reported primarily in the Southwest and Southwest regions. Meanwhile, containerboard mill downtime has been growing, with major buyers in the Northeast, Southeast and Southwest idling machines for maintenance or market adjustments.
‘At this point, the (OCC) price doesn’t matter,’ said a trader in Texas. ‘You could quote the price at US$ 20 per ton but there is nobody to buy it.’ A mill procurement agent in the Southwest noted that Southern ‘swing’ mills that can use either OCC or wood chip appeared to be leaning toward chips, despite the low price of OCC.
Brokers said major Chinese buyers such as America Chung Nam and Ralison International were, at the beginning of April, offering US$ 112 per ton for No. 12 (double-sorted) OCC in Oakland and US$ 115 per ton in Los Angeles.
Sources then said that despite the low price and overabundance of mixed paper around the country, southern mills operated by Pratt Industries – the dominant buyer of mixed paper – were going outside their normal supply radius to bring in cleaner material.
This article is part of the recovered paper market analysis published in our new issue. Special credit to our paper market analyst Ken McEntee of the Paper Stock Report.
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