Continuing to struggle

Paper stock markets are locked in a challenging environment moving into the summer. Demand within the domestic market appears to be easing back as many paper and paperboard mills seem to have adequate inventory on hand. One source in the Midwest says mills are sitting with “healthy inventories” and are not actively seeking to buy more recovered fiber.

Although demand is off, the drop is not deep enough to generate significant concern from paper stock dealers. Prices for many grades have been moving down in small increments, though several sources say a significant downturn could be ahead if the economy continues to remain sluggish.

Tepid conditions in the domestic market are occurring at the same time that a number of exporters complain that offshore shipments, especially to China, are off—and significantly in some cases. While China continues to be a significant buyer of bulk grades, especially old corrugated containers (OCC), there hasn’t been the expected push from buyers there for OCC in light of the softer domestic market.

Several sources say they expected to see China enter the market fairly aggressively during the spring while paper stock prices were a bit soft. Unfortunately, Chinese buying has remained limited as agents for Chinese mills are content to buy smaller blocks of material. This has kept prices from showing much upward strength.

Figures from the American Forest & Paper Association (AF&PA), Washington, support the case that exports, especially to China, have softened. In its annual report, released in late April 2014, the AF&PA says export levels of OCC, the most widely exported paper stock grade, declined by 8.9 percent in 2013 from the prior year.

The AF&PA says the price decline in most key grades of recovered fiber was caused by the overall drop in exports for the year. With exports making up 40 percent of the end market for domestically collected recovered fiber, the decline has had a significant impact on the overall paper recycling sector. In total, the net export of recovered fiber for 2013 stood at 19.9 million tons, a decline of 6.3 percent from the prior year.

While exports slowed down during the back half of 2013, it was expected that offshore markets would bounce back in 2014. The first quarter of 2014 witnessed a modest uptick in offshore orders for some bulk grades, but that buying pattern has not continued. Many of the same recyclers who were banking on a steady Chinese market are now shifting orders to other regions, including cultivating more domestic buying opportunities.
 

A number of paper stock dealers say they are looking to strengthen their business with India. Statistically, however, China remains the dominant player in the paper stock market, so mills in that country will have to return to more robust buying to bolster a truly stronger paper stock market.

With export markets more subdued, recyclers are asking whether domestic mills will seek to push down prices for some bulk grades. A paper stock dealer in the South says he is hearing that one large integrated paper company with a significant buying arm is more aggressively asking for lower OCC prices while expressing the sentiment that prices are still too high to reflect current market conditions.

The fairly lackluster market contradicts expectations from earlier this year, when many paper stock dealers said they expected to see a bit of a pop in price and demand. Several sources say paper stock dealers traditionally see some strengthening in demand toward the beginning of the summer as paperboard mills improve operating rates in advance of increased orders during the second half of the year.

As of the middle of May, however, few signs were pointing to board mills running healthier schedules, which may be a somewhat ominous indicator of the near-term future for the market. Although economists see some positive indicators when looking at macroeconomic data, some recyclers say they are becoming less bullish about paper stock markets for the balance of 2014.

The OCC market is not the only grade seeing downward pressure. The old newspapers (ONP) market is being met with minimal end markets, some recyclers report. At the same time, consumers of the grade, including newsprint mills and insulators, must deal with more ONP that is being generated from single-stream processes and is considered to be of lesser quality.

Reflecting the longer-term future of the newsprint market, according to some reports, at least one Chinese newsprint mill is shifting from making newsprint to making kraft packaging paper. This shift deals another blow to the global newsprint business.

The Mexican paper market also seems to be reducing its intake of office grades from the Southwest U.S. Mexico’s paper mills have been one of the key drivers for that grade in the Southwest. However, tissue mills in the region say they continue to battle problems with lower quality material and have sought to use more domestically generated fiber at their mills.