Paper Department

With winter just around the corner, high grades have been showing signs of warmth in the recovered fiber market, with the material moving well and at relatively high prices.

However, the outlook is a little bleaker for bulk grades, particularly old corrugated containers (OCC), the price of which has been on a slight downward slide during the last quarter of 2006. Packers report high volumes of OCC are keeping the prices depressed.

The old newspapers (ONP) grade has continued to run strong, driven primarily by the insulation market. However, statistics released by the U.S. Department of Commerce in early November reported a sixth consecutive monthly drop in September for private residential construction spending. A paper recycler in the Southwest points out that this slowing of the housing market could have a negative impact on the market for ONP. A source in Florida reports that the dwindling housing starts have already had a negative impact on the domestic market for ONP in that region, although export activity has been strong enough to offset the lack in domestic demand.

In addition, the higher prices of news grades have also caused some increased movement of mixed paper, with some mills buying increased amounts of mixed paper to offset the higher priced ONP on the West Coast. This varies by region, however, as a source in the Northeast reports little mixed paper activity in New England. "The mills we usually use are down or full," he says, adding that more mixed paper than usual is being shipped to China from that region.

Packers say the weather could determine the outlook for the immediate future. Bad weather will encourage mills to stock up.

While 2006 saw an overall steady market for recovered fiber, the year was not without its issues and challenges, some of which included making the transition to an increasingly global marketplace.

"We’ve seen the reality in 2006 of how the global markets are affecting us locally," says one Midwestern packer. Slow but steady buying from China was the pattern during fiscal year 2006, which helped to make up for a general lack of domestic demand, she says.

Transportation issues also contributed to the growing importance of the export market, because in many cases it is more cost-effective to export material to China rather than to ship it to a domestic mill, according to the packer. (For more information on shipping overseas, read "Shipping Paradox" on p. 78.)

And while the freight prices of 2006 contributed some to the growth of the export market, the larger transportation picture challenged the recovered fiber market in other ways. High fuel costs in 2006 made transportation tougher on anyone trying to move material. "Fuel pricing really cut into everyone’s bottom line," says one Southwestern recycler. Despite some sporadic relief throughout the year, those in the paper industry agree that high fuel prices are less a cyclical phenomenon and more a constant business condition that will continue to chip away at their margins for the foreseeable future.

China’s consumption of secondary fiber and issues related to transportation proved big talking points in 2006, and many agree that they will remain key elements in the recovered paper business as the industry looks to 2007.

According to a source on the West Coast, export activity to China can be expected to continue, as several new deinking and containerboard mills are starting up in the country.

On the domestic front, some sources predict a slowdown in collection of OCC in early 2007 matching a slowing U.S. economy, which could lead to some spikes in price in the early part of the new year.

(Additional news about paper recycling markets, including breaking news and pricing information, is available at www.RecyclingToday.com.)