Commodity Report

Positive economic news has been hard to come by so far in 2008. However, the market for sorted office paper (SOP) has been a bright spot in an already-strong recovered paper business.

SOP has been commanding particularly high prices, one Midwestern recycler says. "SOP seems to be the real belle at the party," he says. "It’s had the most upward movement in the last couple months of any grade."

The force driving that momentum has been strong demand from overseas buyers. Developing countries, especially China and Mexico, have sizable tissue mill capacity, which has been keeping their demand for recovered fiber high. Furthermore, the same countries are developing consumer economies with growing demand for tissue-based end products, which keeps the longer-term outlook for recovered paper demand positive, according to a Midwestern broker.

Demand from China was strong enough to withstand some of the worst winter weather the country has seen in a century. China was battered by freezing temperatures and winter storms in late January, stalling transportation in many areas. The storms didn’t seem to have an effect on paper buying, however, according to one recycler based in the Southwest. "Demand hasn’t waned at all," he says.

On the domestic supply side, the market for SOP can expect a slight surge in material during the spring tax season, another likely purge cycle for many businesses and individuals, and a busy time for secure shredders and paper recyclers alike.

According to the usual supply-and-demand formula, an increase in supply should indicate a fall in price. However, the pattern for SOP in recent months has been high prices in spite of strong generation and supply, according to a Midwestern shredder and recycler.

High prices are certainly welcome to recyclers, however, mills and paper processors are starting to feel the crunch of such high material costs, according to one Texas-based recycler. Costs of doing business are rising across the board, from gas prices to operations costs and utility rates. With the price of recovered fiber hovering at such high levels, mills and paper producers are finding themselves with ever-decreasing margins. This is bad news for mills and manufacturers, which must decide whether to absorb the costs or pass them along to their consumers.