Facing the reality of the market

The reality of current recycled commodity markets is that they’re “up, down and sideways,” according to Chaz Miller, a Maryland-based adviser and president of Miller Associates, who spoke at the 2024 Southeast Recycling Conference in Destin, Florida, in mid-February.

During the event’s opening session, Miller joined panelists Michael Hoffman, managing director of St. Louis-based Stifel Financial Corp.; Ryan Fox, corrugated market analyst at Bloomberg; and Fernando Antonio Wadskier, a Miami-based director for GrandBay Group, headquartered in Panama City, Panama.

While low volumes and low box demand throughout 2023 created plenty of headaches, Miller said signs of a potential turnaround are on the horizon.

“One thing that is clear, everybody in the room knows that box demand is down due to lower product sales,” Miller said, noting mills took 2 million tons of economic downtime in the last 12 months.

”The real story of exports is decline.” —Chaz Miller of Miller Associates

“Some companies are reporting slightly improved sales in the third quarter [and] the fourth quarter. There’s a lot of cautious optimism in those quarterly [earnings] reports. … They’re convinced things have turned around, and I think there’s some truth [to that].”

But when looking at old corrugated containers (OCC) volumes, in particular, Fox predicts more of the same in 2024.

“Our base case right now is that box shipments this year are going to be relatively flat, probably down 1 percent,” he said. (For more on Fox’s OCC outlook for this year, see “Heating up.“)

Fox said as far as box-making capacity goes, which companies are making what and what they are making it out of are changing. “All the new producers showing up are skewed toward recycled content,” he said. “They’re very efficient machines … and, so far, the results from these machines are absolutely incredible. It’s changing some of the dynamics.”

Miller works with the Brattleboro, Vermont-based Northeast Recycling Council, an organization that has tracked increases in domestic recycled paper mill capacity since 2017. He said 23 new mills, machines or completed expansions or conversions from printing paper to packaging paper occurred in that span.

According to Bloomberg data, 16 million tons of OCC were consumed in containerboard mills last year. With the recent capacity expansions, Fox said that number could reach 19 million tons if the new recycled paper mills hit their run rates.

“Anybody in the industry that wants to grow or accentuate their position is going to have to look for efficiency, and they’re only going to do it right now through recovered fiber,” he added.

But discrepancies between index prices and “real street prices” are creating unusual dynamics, Fox said.

“The real prices are affecting the mills a lot differently than the data suggests,” he said. “We’re seeing the containerboard price at paper mills is probably around $200 a ton. We don’t know how much more they’re going to be willing to pay with supply and demand imbalances being what they are. I think probably in the near future, that window might be another zero to $20 a ton of movement before they start going, ‘Whoa, we’ve got to pump the brakes here.’

“In some cases, when these mills are looking for supply, if they can’t find it locally, they have to go to the export market ... and that’s created a really big pinch on the markets.”

Especially since, Miller said, “The real story of exports is decline.”

According to his figures, more than 20 million tons of paper were exported from the U.S. in 2016, while last year, that number was a little more than 14 million tons.

“If our estimations are correct, we can see imports rise this year, somewhere about 1.8 to 2 percent,” Fox added. “But this hinges largely upon trade routes—what’s going on in the Panama Canal, what’s going on in the Red Sea may have an impact."