Paper

FITS AND STARTS

Recovered paper markets are displaying some positive signs, though geographic location may be a key to whether or not dealers are seeing any rally.

Chinese buyers have been quite active with bulk grades such as old corrugated containers (OCC) and old newspapers (ONP), though not enough for many vendors to celebrate an end to the challenging environment. In fact, while some dealers in coastal regions have been enjoying a pickup in demand offshore, those further inland are having difficulties obtaining containers for shipment, which is keeping a lid on the movement of material.

One possible reason for the slip in container availability has been the decision by some container lines to switch from using supermax container vessels to smaller vessels. As a result, less space is available on ocean-going vessels.

Even with the positive news that shipments to China have helped prop up some vendors located in coastal regions, signs indicate that some Chinese buyers may be easing back on their buying.

One large exporter says Chinese buyers feel that prices have gotten too high and that vendors are trying to push prices up too quickly. The result could be a near-term dip in pricing if bulk grade shipments drop back.

The relative decline in generation may keep prices for some bulk grades from falling too low. With the U.S. economy struggling, many recyclers are seeing the twin problems of lower prices for recovered material and reduced generation.

On the domestic side, one Midwestern paper recycler notes that bulk grades, especially OCC and ONP, are having a difficult time right now. Higher grades, while depressed to a degree, are moving.

Shifting to the East Coast, another vendor notes that OCC is going for slightly more than $90 per ton at the dock, while ONP prices are about $10 per ton less at the same dock. An East Coast recycler notes that containers are not too difficult to come by in the region, though one container line reports shortages.

A concern for many recovered paper dealers is the financial health of a growing number of North American paper companies. AbitibiBowater, Montreal, recently filed for bankruptcy protection, joining Smurfit-Stone Container, Creve Coeur, Mo.

Other companies that are facing a fiscal squeeze include The Newark Group, Cranford, N.J., which is struggling to make interest payments on senior subordinated notes and has entered into a limited waiver and forbearance agreement. The company’s rating has been lowered to a D, meaning that it is in payment default.

Other U.S. paper companies are challenged by languishing demand. SP Newsprint, Atlanta, Ga., has taken downtime this spring at its Oregon and Georgia mills in light of slow demand for finished product. Other mills either have announced downtime or are closing facilities permanently.

Several recyclers say that while they felt that markets might start to pick up by the third quarter of this year, it may be into 2010 before recovered paper markets improve.