Slowdown side effects

China’s devaluation of its currency, the yuan, has extended the soft demand for recovered paper grades seen lately from that country, with U.S. sources experiencing less export activity.

A source based in the Pacific Northwest says mills in that region are receiving tons of recovered fiber that typically would go to their competitors. This tells those mills, he says, that their competition is full of material. “I have one mill up here that’s been trying to reduce their inventory for two months, and they can’t,” he says.

He adds, “In the Pacific Northwest, the mills are actually pretty full, and that’s because exports are quite slow; so a lot of tonnage that might have gone export is staying domestically because there’s very little difference in price.”

He describes the market as “tough” and demand from China as “bad,” adding that the country’s economy “doesn’t look very good.”
 

A source based in Virginia who exports most of his company’s fiber to China says he is concerned about the yuan devaluation and its effect on prices for recovered fiber exports from the U.S. “It’s going to cause [recovered] paper prices to be more expensive to Chinese buyers.”

While he says Americans are spending money and the U.S. economy is “somewhat promising,” the supplier explains that he would rather China’s economy pick up so that country would buy more material instead of devaluing its currency. “If the Chinese don’t buy material, then everybody is scrambling to find somebody to buy their material,” the Virginia-based source says.

He predicts recovered paper prices will be stagnant and soft for some time.

The source based in the Pacific Northwest says he is not optimistic about the direction of the market for the rest of 2015. “It doesn’t pay to export with the strong dollar so … I think the liner and medium mills will start taking some market-related downtime,” he says.

However, he says the containerboard and tissue sectors have good long-term prospects. He also points to increasing old corrugated containers (OCC) generation thanks to back to school shopping, the agricultural industry packaging this season’s produce into frozen food boxes and the upcoming holidays.

Sources say overseas freight rates are competitive. “The steamship lines are dropping rates to levels we haven’t seen. It’s unbelievably cheap to ship right now by ocean freight,” the Pacific Northwest source says, adding, “Steamship lines are bleeding money.”

The Virginia source says large companies such as Amazon.com Inc. and Target Corp. have opened distribution centers in that East Coast state because the container ports located there have helped to curtail freight rates.

“Amazon and Target importing stuff from China for the most part we like because they bring containers over here that we can stick waste paper in and it keeps freight rates low,” he says.

He points out that there are discussions about expanding a Virginia port in case another West Coast port slowdown occurs because large retailers like Amazon and Target cannot be caught without material.