Supply is in command

Demand for recovered paper has remained strong at the start of the new year, but continued logistics issues have contributed to rising high-grade prices, particularly for sorted office paper (SOP), as facilities compete for supply.

There was hope that after the holidays demand would start to stabilize, but Melanie Harman of Duluth, Georgia- based Recycling Management Resources says demand for “white [grades] has been off the chart.

“I came back from the holidays and thought we’d have a more normalized January,” she adds. “Now we’re in a scenario where there’s not enough supply of SOP, so people are chasing and paying extra dollars.”

According to Fastmarkets RISI’s PPI Pulp & Paper Week Jan. 6 issue, U.S. mill demand has driven up domestic prices for SOP by $10 per ton across the board. PPI adds that prices for SOP and all deinking grades have increased for 11 months straight.

”Anyone with supply right now is in command. … I don’t think it will improve enough to feed the beast.” — Melanie Harman, Recycling Management Resources

“Anyone with supply right now is in command,” Harman says. “We’re here in mid-January trying to make up for what they didn’t get in the first weeks of January. Will that come? I don’t know. I’m not seeing a positive yet where supply is going to start showing up. I don’t think it will improve enough to feed the beast,” she adds.

But when it comes to old corrugated containers (OCC), a supply-demand imbalance has decreased pricing in the U.S. for the third straight month.

An overabundance of OCC is in the marketplace party because of the holiday season and the associated increased generation. A broker based in the South says dynamics such as the holidays and weather can move the market by $10 or $15 per ton.

As mills fill with OCC, transportation issues are creating what the broker calls a “bottleneck in export [markets] that’s coming full circle.” OCC is available, but logistics issues continue to plague facilities nationwide, preventing them from sending much material overseas.

The transportation issues also are affecting containerboard mills’ ability to get their products to customers. “Mills are full. Machines are running 24/7 making new boxes,” the broker in the South says. “Domestic trucking shortages are impacting mills’ ability to ship cardboard out of the facility. I’ve heard a lot that the lead times to get new boxes are just through the roof. … That’s what’s driving downward pricing pressure.”

Harman adds that many industry professionals believed some of the immediate trucking backups would be resolved by mid-January after the holiday season was far enough in the past. However, she says winter weather also has negatively affected ground transportation.

“Holidays disrupted the whole logistic plan, and we thought that would get behind us. Then we had a snowstorm that further exacerbated pickups and collections,” she says. “You can’t get it picked up and you can’t get it out the door.”

Unfortunately, many sources tell Recycling Today they anticipate transportation will continue to cause havoc in the market, at least in the first few months of the year. Another broker based in the South says the current situation is “not sustainable.”

Harman adds, “That transportation issue is not going away. You don’t have enough truck drivers; you don’t have enough assets.

“From a mill standpoint, their costs are going up exponentially,” she continues. “Having to pay more for fiber, pay more for trucking … it’s just an interesting time.”

With several new mills coming online this year, several sources tell Recycling Today they remain somewhat optimistic that domestic OCC prices could stabilize despite the transportation issues and current oversupply of material. NORPAC, Celadon, Sonoco, Graphic Packaging International, Atlantic Packaging and Cascades all plan to add capacity that will be fed in part with OCC this year.

But 2022 looks to be a difficult year for overseas buyers of recovered fiber from the U.S., particularly for SOP, as U.S. demand remains high. A broker in the Northeast says, “Because local mills have such high demand, there is less tonnage going to export.”

The recovered fiber broker based in the South adds, “Demand for high grades is as strong as I’ve seen it in a year, and I don’t see that changing.”