Paper Department

A Recovery in the Making?

The bleak recycling market at the back end of 2008 and the first quarter of 2009 may be dissipating, according to a number of paper recycling companies. Could the industry be on the cusp of a return to strength that was seen as recently as early last year?

Fiscal problems still affect a number of the larger U.S. paper companies, however, with some mills facing a dreary future without some kind of near-term stimulus. More mill closures, both temporary and permanent, are expected in North America as the paper industry tries to come to grips with changing demand from domestic consumers.

While prices are still not where they were during the middle of last year, there are some promising indicators in the market right now. OCC (old corrugated containers), which many people track as an indicator of an improving economy, is seeing some increased demand.

As the economy continues to limp along, generation of OCC is low in light of recessionary factors. Several recyclers say orders for OCC are strong, notably on the export side.

The Visy mill opening in Louisiana also could signal more positive news for the industry. The mill is expected to soak up considerable low grades tonnage, which should help to firm prices throughout the South and in parts of the Southwest.

While declining demand from China was a main reason for the sharp drop in demand and price in the second half of last year, the country has picked up its purchasing of low grades, such as OCC and mixed paper. And, unlike the United States, China also is adding new capacity, which will likely keep demand for recovered fiber strong.

Another source notes that domestic board mills are running presently at around 80 percent of capacity. However,
linerboard inventory levels are reduced. "[Board mills] are really managing their inventories, so with a little bit better business, we could see a real jump in prices," another paper recycler notes.

Higher grades also are showing modest markets, though prices are less robust than those for bulk grades. Again, offshore shipments, particularly to Asia and South America, are helping to drive demand for bulk grades.

There have been upbeat signs of offshore buying for higher grades as well as for office pack grades. Although some of these higher grades have been "pushed down," in the words of one paper stock dealer, there does seem to be renewed interest from buyers. Several exporters note that South Korea has been buying more loads, which is helping keep high grades afloat. Several other Asian countries also have been placing larger orders.

One area of concern during the past several months has been the criticism over some paper mills receiving tax credits for using black liquor, a by-product of the wood pulping process. (The tax provision was originally intended to promote alternative fuels for motor vehicles.) While this had a modest effect on the market earlier this year, a number of paper stock dealers say the trend hasn’t affected business much overall. The sluggish economy is the far bigger problem.