Holding Pattern

The first quarter of the year is bringing a semblance of stability to paper stock markets. In late January many paper stock dealers are expressing cautious optimism. Prices have held up fairly well during the first month of 2013, though market volatility has led many paper stock dealers to hedge their optimism with a number of caveats.

One concern that remained as January wound down was a potential dockworker strike at East and Gulf Coast ports. Contract negotiations between representatives of the International Longshoremen’s Association and shipping companies have been ongoing since late last year. However, multiple negotiation extensions have pushed back the potential strike, and as of Feb. 1 negotiators had agreed to a tentative deal on a new six-year contract. However, members of the International Longshoremen’s Association still must ratify the contract.

One large paper stock exporter says the multiple negotiation extensions had muted concern over a strike, though he adds that a strike could have been damaging to the export market.

Another concern is the lack of generation. The first quarter of the year is typically characterized by low generation, but several packers say supply has declined even more because of the slow-to-rebound economy.

On the positive side, signs pointed to an upsurge in demand and pricing for some bulk grades, notably old corrugated containers (OCC), at the start of the year. The strength in bulk grades during December and January was driven primarily by domestic board mills, which sought to build up dwindling inventories. This led to stronger orders for OCC throughout the United States, with some sources saying a number of mills in the Midwest were paying nearly export prices to secure recovered fiber.
 

However, after this initial push to build up their recovered fiber inventories, more recent indications show that some board mills are easing back on new purchases, giving the OCC market pause.

Buyers for Chinese consumers reportedly re-entered the market in late January. China is a continual buyer of recovered fiber, though there seemed to be an easing back in purchases toward the end of 2012. Some observers have speculated that the pullback could be related to China’s Lunar New Year celebrations.

While Chinese buying appears more aggressive as of early February, several sources say these buyers are trying to push recovered fiber prices down. A number of domestic mills also reportedly are joining this trend, hoping to hold the line on pricing.

A number of processors say they expect to see a modest dip in OCC prices by the end of the first quarter, though it does not appear that the drop will be sharp.

Looking at the past year, a recently released report shows that paper stock exports began trending slightly downward toward the end of 2012. According to the American Forest & Paper Association (AF&PA), Washington, D.C., exports of recovered fiber in November 2012 declined by 4 percent from the prior month, though the figures were 4 percent higher compared with November 2011.

For the first 11 months of 2012, the AF&PA reports that total exports of recovered fiber declined by 5 percent from the same time in 2011.

On the domestic front, the AF&PA reports that total U.S. industry consumption of recovered paper during December 2012 was 2.38 million tons, a slight 1 percent increase from November 2012.

The AF&PA adds that receipts decreased for most grades and, coupled with the flat consumption for December, caused an across-the-board decrease in inventory. For the full year, recovered fiber consumption was 3 percent lower than in 2011, according to the association.

Reflecting the improvements seen in January 2013, several paperboard producers have announced plans to hike their finished product prices. The Newark Group, Sonoco and Caraustar had announced plans to raise prices for recycled-content paperboard by $25 per ton in February 2013. The companies say the price increase is partly in light of higher raw material (OCC) prices.

Whether the price hike will hold, however, is still uncertain.

Other low grades have found balance, though they show less strength. Old newspaper (ONP) grades have decent pricing, though many dealers say that is because of steadily declining supply.