A Partly Sunny Outlook

As of mid-September, paper stock markets appear to be in fairly decent shape. Prices for most grades of recovered fiber have improved a bit, domestic mills are placing larger orders and offshore buying from most sources, including China, has picked up.

The positive outlook has been fueled by new capacity that has come online in North America. Atlantic Packaging Products recently reopened its Whitby, Ontario, mill, which originally produced newsprint. The mill closed in light of soft demand for its finished product. However, following a technology upgrade enabling the plant to produce recycled paperboard products such as linerboard, the mill has reopened and has begun ramping up production.

One source says that while the Whitby mill has gone through some “fits and starts,” when it is running at full capacity, it will be producing roughly 1,100 metric tons of recycled paperboard per day. The mill is expected to need a significant amount of OCC (old corrugated containers) that it will likely source from throughout the Northeast, sources say.

The new capacity will be joining several other consumers in the area, including RockTenn’s Solvay Paper mill in the Syracuse, N.Y., area, which also consumes OCC.

With all the new capacity coming online that consumes OCC, some vendors say they are concerned about finding enough material to respond to demand. “I don’t know where the supply to feed these mills will come from,” one paper stock dealer says.

Another source adds, “Markets are healthy. We are not turning loads away. Our order books are good. There is very good demand for OCC.”

In a traditional market, following a slowdown during the summer, mills ramp up for end-of-year business. However, this year’s ramp-up has been far less than expected so far, according to sources. As a result, some dealers say they are less certain that markets will continue to strengthen through the rest of the year.

However, overseas developments appear promising. There has been an uptick in purchases from Chinese mill buyers. One exporter says Operation Green Fence has eased as of late, which is helping to redirect some bulk grade shipments to China.

While the implementation of Operation Green Fence had a significant impact on paper stock shipments to China, it also resulted in a number of domestic mills tightening their own standards. Because of the higher standards on the part of consumers, a number of paper mills have become more vigilant regarding the material they accept. One West Coast source says a number of mills in the Northwest, including those operated by Longview Fibre and International Paper, have reduced their purchases of single-stream material.

Several sources say some Chinese buyers also are avoiding material recovered from single-stream operations.

Old newspapers (ONP) have seen a rebirth recently. One exporter says that after reducing its ONP intake for several months, China needs the material and buyers are willing to pay as much as $10 more per ton than they paid in August.

The printing paper market also has seen an improvement. A paper stock dealer in the Midwest says some of his printer customers are seeing business pick up.

Although several sources say printers have been running at a better clip recently, longer-term challenges remain within the printing and writing sector. For instance, in early September, International Paper announced plans to permanently close its Courtland, Ala., paper mill, which produces approximately 1 million tons of printing and writing paper per year. The company says it expects to shutter the mill by the first quarter of 2014.

Another potential concern for paper stock companies dealing in high grades is the trend by some mills to increase their pulp consumption at the expense of recovered fiber. One source says some mills still find quality to be a concern and therefeore are blending in more pulp with their recovered fiber as a result.

The high-grade paper market also is seeing modest softening in the Southwest and Midwest. One source says Mexican mills, which traditionally purchase significant amounts of white ledger and high grades, are cutting back new purchases. “Mexican mills are a bit full right now,” one broker says.

While China has come back into the market in a stronger way, India, which purchases ONP and some other paper stock grades from the United States, is a source of concern as its currency weakens. The declining value of India’s currency makes it more expensive for consumers in that country to import material, ultimately reducing overall imports of commodities such as recovered fiber.