A Tale of Two Markets

At the end of November 2012, domestic and offshore recovered fiber markets were moving in divergent directions.

Old corrugated containers (OCC) markets were showing some softness on the export side, especially in terms of U.S. shipments to China. Several sources say Chinese buyers are trying to push down prices. One source says the results of this effort have been mixed. He speculates that prices may dip by perhaps $5 per ton in December.

According to reports, China’s central government has requested that a number of boxboard mills in the country, consumers of OCC and other bulk grades, take two weeks of downtime to conserve water. An exporter based on the West Coast says these mills have consumed their allotment of water and have been asked to cut production.

Also playing a factor in offshore shipments is the upcoming Chinese New Year, scheduled for Feb. 10, 2013.

The domestic market offers more optimism for bulk grades. However, the end-of-year holidays are creating a challenging environment for a host of board mills. According to various reports, a number of recycled board mills are attempting to build up their raw material inventories. Several sources say inventories at a number of large recycled board mills have been significantly depleted, with some mills reportedly carrying only a few days of recovered fiber in inventory. With generation still light, many of these board mills are reportedly paying premiums to guarantee themselves an adequate supply of recovered fiber for their near-term production needs.

The Southwest could be a major focal point in the U.S. market, as a number of large OCC consumers are located throughout the region and they are all chasing the same tight supply. One paper stock dealer says the market in this region could “pop” if mills see their recovered fiber inventories depleted further.

Another recovered fiber dealer in the Southwest says OCC is “pretty easy to move” as of late November. He predicts a possible uptick in pricing for the grade as well.

The exporter based on the West Coast speculates that because Chinese mill buyers are trying to push prices down while domestic mills are looking to purchase more material, the spread in price between the two markets could narrow. At a certain level, U.S. paper stock dealers may be prompted to shift tons that were previously allocated to the Asian market to domestic consumers.

Several other bulk paper stock grades also saw modest improvements through most regions of the United States toward the end of 2012.

Mixed paper, which saw prices move down by $5 per ton in November, has experienced a modest upswing in the domestic market. One source says Superstorm Sandy, which hit the New York/New Jersey area this fall, took Visy Paper’s Staten Island, N.Y., recycled board mill offline for a time. Because of this, Visy’s board mills in Shreveport, La., and Conyers, Ga., had to fulfill the orders from the Staten Island mill and aggressively locked in orders for mixed paper.

Old newspapers (ONP) as a true grade may be disappearing, but as a raw material, it is holding its own. Prices haven’t shown a strong upward bias, but the grade is finding steady homes with domestic consumers, despite several large newsprint producers reducing run times or closing operations.

The strength seen in demand and pricing for bulk grades or recovered fiber as of late November is not translating into better markets for high-grade material, however. Sources report that movement of high grades remains slow and will likely continue to be slow into early 2013.

Mexican markets, which have traditionally been prominent buyers of high grades from Southwestern paper stock suppliers, seem to have cooled their new purchases. One paper stock dealer speculates that orders to the printing industry have been held up by the recent Mexican election.

Another recent closure could further affect orders for high-grade paper stock. Resolute Forest Products, headquartered in Montreal, announced the shutdown of a paper machine at its Laurentide mill in Shawinigan, Quebec, Canada. The company cites what it calls a sharp drop in demand and an increase in market capacity as the reasons for the closure.

The Laurentide mill produced more than 350,000 metric tons of commercial printing papers per year using two machines. The machine that was closed produced 125,000 metric tons per year. The shutdown did not affect the other line (paper machine No. 11), which has an annual production of nearly 225,000 metric tons per year, according to Resolute Forest Products.
 

“Resolute must prove that it is profitable with mills that perform well, which forces us to improve our competitive edge by focusing on our best assets and cutting costs,” says Richard Garneau, Resolute president and CEO.

Garneau says market demand and capacity, the strong Canadian dollar, rising freight and fuel costs, plus the continuing high cost of fiber all factored into management’s decision.

(Additional information on secondary paper markets, including breaking news and consuming industry reports, is available at www.RecyclingToday.com.)