Counting on new capacity in 2020

Depressed prices for recovered fiber grades continued into the November buying period. The average domestic price for old corrugated containers (OCC) slipped from $25 to $22 per ton, according to the Nov. 5 Fastmarkets RISI PPI Pulp & Paper Week Price Watch. Domestic prices for high grades, such as sorted office paper (SOP), also declined in November by about $5 per ton in most regions, and export prices for that grade also weakened.

During Atlanta-based WestRock’s fourth-quarter earnings report conference call Nov. 7, the company predicted OCC prices won’t start to increase much, if at all, until the second half of 2020. However, during Quebec-based Cascades’ third-quarter earnings report conference call Nov. 8, the company said it expected OCC to be “close to a bottom price.”

“No one really knows when market conditions will improve. Some think it will turn in six months, some think in 2021.” – a recycler in the South

A recycler from the South says he talked to many recyclers and brokers at the 2019 Paper & Plastics Recycling Conference (PPRC), which was organized by Recycling Today Events in Chicago Oct. 23-25, and he says he learned from these conversations that “everyone is in the same boat,” facing tough market conditions. The recycler adds, “No one really knows when market conditions will improve. Some think it will turn in six months, some think in 2021.”

Recovered fiber conditions also are challenging in the United Kingdom. Simon Ellin, chief executive of U.K.-based The Recycling Association, says recovered fiber prices have been “tough going” in recent months and that nation’s recycling industry has been experiencing very similar conditions as the United States’ recycling industry. In the U.K., he says recovered fiber grades are moving but at very low prices.

“It’s worrying, and I think a lot of members are worried about the short-term prognosis and getting through tough times,” Ellin says. “But hopefully, we believe, things will get better—but that might not be for a prolonged period.”

Although prices for recovered fiber are low and mills have become stricter on quality demands, most recovered fiber has been moving steadily. A broker in the West says plants he works with have had far fewer tons of inventory waiting to be moved this fall.

“Back in July, I could name many plants I work with that had huge inventories of corrugated baled in parking lots—thousands of tons that couldn’t move,” he says. “By the end of August, all that inventory sitting backed up was gone. Demand obviously increased. Pretty much all the plants I work with have said as fast as they create a load of corrugated, a mill picks it up.”

The broker in the West adds that he sees several reasons to be optimistic about OCC heading into 2020. One of those reasons is the “enormous amount” of new containerboard capacity to consume recovered fiber coming online in the U.S., Mexico and Asia in the next few years, he says.

“Demand obviously increased. Pretty much all the plants I work with have said as fast as they create a load of corrugated, a mill picks it up.” – a broker in the West

Many PPRC speakers discussed some of this new capacity. In the Containerboard Dynamics session, Kelly McNamara, senior market analyst at Quebec-based Numera Analytics, said that outside of China, recovered fiber demand is expected to rise about 14 million metric tons between now and 2023 based on confirmed projects. Many of those projects are in Southeast Asia. For instance, Nine Dragons has announced plans to construct a paper mill in Malaysia that will consume 480,000 tons per year of recycled pulp.

Another reason for optimism is that economies likely will start to improve once China and the U.S. resolve their trade tensions, the broker in the West says. As economies improve, demand for recovered fiber typically improves.

With some recycling programs scaling back on collecting recovered fiber in some parts of the U.S. because of its low value, supplies of recovered fiber will decrease, helping to balance the market, he says. “With less available material, it could increase demand from paper mills,” he adds. “It doesn’t take much of an increase in demand or supply to change the equation.”