Bulk grades pick up steam

The old corrugated containers (OCC) market has rebounded in light of strong buying from Chinese mills and steady buying from a number of domestic paperboard mills.

One West Coast-based broker says the OCC market is “hot” as of late May. Earlier in the spring, OCC prices jumped by more than $10 per ton, and in May prices continued to climb, moving up another $5 to $7 per ton. America Chung Nam and Ralison, buying arms for two large paper companies that are based in China, have been leading the upswing in price and demand.

Another source says the Chinese market is somewhat conflicted presently, with mills in the South running much better schedules than those in the North.

The strength in OCC also is extending to old newspapers (ONP) and mixed paper. These two grades have seen an upturn in demand, though price increases have been modest. ONP and mixed paper have been and likely will continue to be exported steadily to strongly. The improvement could continue through the rest of the summer as Asian mills look to build up inventory.

ONP, however, could face challenges. Korean newsprint mills, typically large consumers of the material, are experiencing difficulty with their end markets, sources say.
 

Within the U.S., domestic paper mills are gaining strength. In the Southwest, the restart of a paper machine at International Paper’s Valliant, Oklahoma, paperboard mill is pulling more material from the area. Further east, Pratt Industries’ soon-to-open recycled board mill in Indiana also is pulling more tons from throughout the Midwest.

In other Pratt news, the company has planned to open two recycling facilities in the Midwest in June: one in Wichita, Kansas, the other in Gary, Indiana.

In the eastern U.S., several sources say prices for OCC and ONP are pretty good. A combination of domestic and offshore interest is helping keep prices decent.

While overseas markets are having a positive influence on demand and pricing currently, according to figures released by the American Forest & Paper Association (AF&PA), Washington, only 39 percent of the fiber recovered in the U.S. in 2014 was exported, while 61 percent was consumed by domestic mills. Domestic mill consumption increased by 1.9 percent to 30.5 million tons, and net exports increased 1.5 percent to 20.2 million tons.

The association says 65.4 percent of the paper consumed in the United States was recovered for recycling in 2014, an increase of 1.9 percentage points relative to 2013.

While prices for key paper stock grades appear to have turned the corner and are heading upward, overall generation continues to be soft, which is making it difficult for processors to operate profitably, according to sources.

“There are some big struggles on the processing side,” one East Coast source says.

The combination of demand for higher quality material and reduced supply is making it more difficult for many recycling plants to stay in business, according to sources.

Comments from Waste Management CEO David Steiner reflected the difficulties facing processors of residential recyclables. During an interview with CNBC, Steiner said commodity prices declined by 14 percent during the first quarter of 2015 relative to the same time last year. As a result, Waste Management’s revenue has declined by $70 million during the same period.

According to sources, single-stream recycling facilities that banked on high volumes of incoming recyclables as the ticket to profitability are experiencing the most difficulties among material recovery facility operators.

Several sources say companies that have either focused on limited automation or have avoided single-stream processing have been able to carve out a niche without the higher operating expenses associated with single-stream systems.