Lingering uncertainty

Uncertainty in the recovered fiber sector continues as countries restrict imports and debate the addition of tariffs. Domestically, freight rates continue to rise. As the Institute of Scrap Recycling Industries (ISRI), Washington, notes in its July 9 “Weekly Market Report” email in the section on secondary paper, the “abruptness of the market shift is painful and further exacerbated by high capital costs in both assets and time to transition the supply chain to meet the new conditions.”

In its July 16 “Weekly Market Report” email, ISRI points to how only certain grades of recovered paper have been affected by trade measures. “The increase in high-grade deinking and pulp substitute bales may be a result of two factors—the decrease in printing/writing paper consumption in the U.S. and the increasing need for feedstock towards hygienic paper products in the developing world where burgeoning middle-class demand is rapidly expanding,” ISRI writes. The association cites Mexico and Thailand as prime examples of developing countries with growing middle-class demand. More generally, U.S. exports of finished hygienic paper products are up 24 percent in volume and 23 percent in dollar value, according to ISRI.

An exporter on the U.S. West Coast says pulp subs, being preconsumer grades, are clean enough to meet China’s 0.5 percent contaminants rule on incoming shipments of recyclables that went into effect March 1. China historically has imported bulk grades but has made some shifts since implementing these regulations.

“I have mills I sell to domestically that have told me in many cases their freight has doubled in any freight lane.” – a trader on the West Coast

“China is buying a lot more of other grades, like deinking grades and pulp subs,” the exporter on the West Coast says.

The Chinese government’s effort to reduce its dependence on imported scrap materials has resulted in a 56 percent drop in scrap imports in the first half of 2018 compared with the first six months of 2017, according to an online item from Xinhua, a Chinese government news bureau. China’s General Administration of Customs (GACC) has reported that imports of plastic, paper and metal scrap totaled 9.98 million metric tons in the first half of 2018. That figure is down 56.3 percent from the same period in 2017, according to Xinhua and the GACC.

The West Coast-based exporter says domestic transportation issues are just as disruptive as import policy changes in China and of utmost concern for U.S. recyclers and recovered paper professionals. Costs continue to rise, while a driver shortage prevents material from moving.

“Rising tariffs and bunker prices are putting the squeeze on carriers.” – The Journal of Commerce

“I have mills I sell to domestically that have told me in many cases their freight has doubled in any freight lane,” the trader says. “The transportation costs of getting a load from the recycling plant to the mill has just gotten out of control,” he adds.

From the shipping industry’s perspective, 2017 was “a good year” in respect to profitability, ISRI says in its July 9 “Weekly Market Report” email. ISRI notes that much of the gains might have been the result of streamlining costs and cutting routes with high marginal costs.

“While the adaptations may have increased efficiencies to improve the bottom line, the streamlining may have been based on cost models that are no longer characteristic of the market.” ISRI cites The Journal of Commerce, saying, “Rising tariffs and bunker prices are putting the squeeze on carriers as they struggle to raise rates to help cover the transition costs to the new, streamlined model.”

Pricing as reported by Boston-based RISI’s July 6 PPI Pulp & Paper Week (PPW) was similar to that of June for the major secondary paper grades—mixed paper, old corrugated containers (OCC) and sorted residential papers and news (SRPN). The only price hikes seen in the domestic market were for OCC in the Southeast and Southwest regions—which increased by $5 per ton and $10 per ton, respectively—and for sorted office paper (SOP) in the New York, Midwest, Southeast and Southwest regions. The SOP pricing increases ranged from $5 per ton to $10 per ton, according to PPW.