Commodity Report

ON THE RISE

The recovered fiber market continues to show strength in early 2007. The first quarter of the fiscal year is typically a slow time, but healthy export demand is driving prices up across the board, particularly for old corrugated containers (OCC).

"Markets are hot," says one Ohio recycler, adding that the export market is the primary driver.

Prices have been so strong—$160 per short ton delivered to the harbor in California, according to one West Coast recycler—that some in the market are wondering if the industry is in for a repeat of 1995. One recycler based in the Southwest recalls the year when prices skyrocketed—only to drastically bottom out. "We hope it’s not like that," he says. "The steeper the climb, the harder the fall."

Other sources believe that the hungry export market is enough to keep such a drastic event at bay. "We have a whole different world now that we did in ’95," says one Midwestern packer. "It’s a global market." Fears of a bursting bubble aside, the market is enjoying some of the strongest prices in recent memory, and OCC isn’t the only stand out. Strong prices are being reported across most grades, including ONP (old newspapers), office pack and mixed. "When OCC goes up significantly, the other grades seem to follow," says a Southwestern recycler.

A California recycler credits some of the current market’s strength to new capacity coming online overseas. He says new machines have opened in China for ONP and OCC, and Indonesian mills have also expanded, contributing to an increase in demand. "Overall, there’s a lot of new capacity causing somewhat sudden additional demand," he says.

He adds that since so much tonnage is headed overseas, some domestic mills have raised their price offerings just to compete. "It’s a packer’s market right now," he says.

Late January 2007 also brought the announcement of merger plans between Abitibi-Consolidated Inc. and Bowater Inc. According to a press release, the two companies made a definitive agreement to combine in "an all-stock merger of equals." The new company will be called AbitibiBowater Inc., and with expected pro forma annual revenues of about $7.9 billion, it will be the third largest publicly traded paper and forest products company in North America and the eight largest in the world. The company’s headquarters and executive office will be in Montreal, Quebec, with a U.S. regional manufacturing and sales office in Greenville, S.C. John W. Weaver will be executive chairman, and David J. Paterson will be president and CEO.

It’s still too early to measure the effect this move will have on the market in the Southeast, according to a buyer based in Florida. He says there’s not much discernible difference yet, but also reports a slight cooling in buying in the area. "Nobody’s going to buy too much right now because you don’t know what’s going to happen," he says.

According to the press release announcing the merger, the company will own or operate 32 pulp and paper facilities and 35 wood product facilities mainly in eastern Canada and the southeastern United States.