Seeking balance

Recyclers who trade in metals have experienced more serious price volatility (almost entirely on the downside) in 2015 when compared to recovered fibre traders. But the first three quarters of 2015 have nonetheless produced a few ups and downs for paper recyclers who trade in the most common grades.

The old corrugated containers (OCC) grade experienced a sharp price drop in the first quarter of 2015 but has subsequently regained the value it lost, with most of the rebound occurring in the summer months.

Many other grades have followed a similar pattern, as a global economy that seems to offer a new source of concern every week has caused plenty of economic sputtering and no clear path to either a global boom or bust cycle.
 

Falling upward

For Europe in particular, the summer months can mean decreased industrial production, which results in both less recovered fibre generation and the likelihood of diminished paper mill output and demand for feedstock.

The summer of 2015 pointed to the continuation of that pattern as indicated by statistical measures and the observation of recovered fibre collectors and traders.

A recovered paper broker based in Western Europe described June and July as offering “typical seasonal generation” that was “lower in summer due to vacations.”

His observation is that Southern Europe in particular yielded less recovered fibre in the summer months, with Greece “lagging severely” and down as much as 45% against 2014, owing to its uniquely precarious economic situation in the past months.

Another recycler, based in the United Kingdom, says generation was down in July but in line with previous summer slowdowns.

As of mid-August, the Western European broker reported that generation was “slowly returning to more normal conditions,” even in Greece, as confidence in the banking system and a negotiated settlement with the EU seemed within reach.

Curtailed summer supplies were likely one factor in rising prices for benchmark recovered fibre grades in July. In some parts of the world, renewed demand also is playing a role.

In the United States, PPI Pulp & Paper Week pricing calculated by RISI shows a rebound in OCC pricing in June and July that added more than $13 per ton to the average U.S. price in those 60 days, for an 18% gain in value.

The rebound occurred after OCC in the U.S. dropped in value from $90 per ton in September 2014 to a low of $71.39 per ton in March 2015, representing a 21% price decline.

RISI says the mixed paper grade in the U.S. has followed a similar pattern, falling from $52.50 per ton in November 2014 to a recent low of $45.83 in March and April 2015. Subsequently, the grade eased back up to more than $53 per ton by July.

U.S.-based recyclers and traders contacted for Recycling Today’s paper market report cite steady and healthy demand from North American paper mills as the leading factor in the rebound.

Export activity in the U.S. remains hampered by port bottlenecks (especially on the Pacific Coast) and the strong U.S. dollar, according to traders.

Domestic mills, however, are making up for the soft export markets. Mick Barry, president of Mid America Recycling, Chicago, points to the restart of a paper machine at a paperboard mill operated by International Paper in Oklahoma as one factor for increased OCC demand in his region.

The strength of the paper and board packaging sector globally has been a bright spot for collectors and traders of recovered fibre, one not always matched by other grades.
 

Passing grades

Among the ongoing paper industry trends are the divergent paths being taken by communication grades of paper (such as newsprint) and packaging and tissue grades.

Recent statistics and financial reports are pointing to the ongoing health of the containerboard and paperboard packaging sector.

In the U.S., the American Forest & Paper Association (AF&PA) reports that production of containerboard in the United States rose 2.9% in June 2015 compared with the previous month’s output level.

AF&PA, which released its June 2015 U.S. Containerboard Statistics Report in mid-July, also says containerboard production was 1.2% greater in June 2015 compared to output in June 2014.

The capacity rate at containerboard mills in the U.S. increased slightly to 97.4% in June, rising from an already-strong 97.2% rate in May.

In 2014, the AF&PA estimates containerboard mills in the U.S. consumed more than 16.6 million tons of recovered fibre, or 33% of all of the paper and board collected for recycling in the United States.

The health of this high-consumption sector has also been indicated in the first-half 2015 financial reports of several containerboard producers, including International Paper, Ireland-based Smurfit Kappa Group and U.S.-based Packaging Corp. of America.

Each of the companies reported a profitable landscape and healthy demand for its packaging grade products. (For more on the status of the containerboard sector, please see the Paper Market Report found on page 16 of this issue.)

Although sneezing into a tissue hardly connotes good health, the paper industry’s tissue sector remains another one with reasonable expectations of global health and growth.

Similar to containerboard producers, global tissue maker SCA, based in Sweden, reported an increase in net sales and “organic sales growth” in the first half of 2015.

“Consolidated net sales for the second quarter of 2015 increased by 13% compared with the same period a year ago,” says SCA, adding, “Organic sales growth was 5%, with growth in all business areas.”

Although the sector consumes less recovered fibre as a percentage of its feedstock compared to containerboard makers, the tissue sector provides an additional source of demand for white grades (including shredded office paper) in many parts of the world.

In the U.S., the AF&PA estimates more than 4.4 million tons of recovered fibre went to tissue mills in 2014. That is nearly eight times the amount that was consumed by newsprint mills in the country, helping to point out the dire straits of the newsprint sector.

The world’s remaining newsprint producers are increasingly seeking to diversify their product lines, with Norway’s Norske Skog recently reaffirming the strategy.

The newsprint and magazine paper producer reported a net loss of $68.8 million for the second quarter of 2015. The company also reported a 28% decline in gross operating earnings in the second quarter of 2015 compared to the first quarter of the year.

The dismal state of the ink-on-paper sector has prompted the company to enter the tissue market by converting a newsprint mill in Austria to tissue production through a joint venture structure with Italian producer and tissue distributor Roto-cart.

“The joint venture will replace newsprint production at Bruck with tissue, thus supporting the market balance for newsprint and exposing Norske Skog towards the growing market for tissue,” states Sven Ombudstvedt, president and CEO of Norske Skog.
 

Plotting the map

Recovered fibre traders who are on the front lines of paper industry conditions have also been spending considerable efforts determining how geopolitical and international monetary factors are tying into their industry.

After more than a decade as the nation that spurred dramatic changes to the recovererd fibre sector, China continues to play a major role in the demand for and pricing of key grades.

The Western European broker credits renewed interest from Chinese mill buyers as one factor in the mid-2015 rebound in OCC and mixed paper pricing.

“European mill buyers were perhaps caught off guard by the initial strength of export demand for OCC and mixed paper in the March-to-July period,” he comments.

He describes demand from China as “better than in 2014, for sure,” and notes that currency exchange rates continue to favor European exporters over American ones.

“The euro losing ground against the U.S. dollar has helped put EU material at the preferred end of the price-for-value range for Chinese recovered paper buyers compared to last year,” he says.

The trader is unconvinced demand from China will remain strong in the remainder of the year, however, as the nation’s manufacturers continue to report stable but not high-growth numbers.

“Prices for OCC followed behind export demand once the European mills got concerned about their ability to re-stock their inventory,” says the trader. The export market “cooled off” after prices rose in Europe and now he suspects some Chinese mills have the inventory levels they want, taking “pressure off” the European mill buyers.

Nonetheless, as it has throughout the past decade, China made its presence known. Now, “Smaller European mills are battling it out in some cases to ensure their supply, and August can be a bad time to try to shore up inventories because of the slower seasonal collection,” says the trader.

While neither Europe nor the United States is trying to retain a 7% GDP growth rate, fiscal policy makers in those places are wrestling with how to retain their more modest upward momentum. The newest wild card, as of mid-August, is the drop in value of the Chinese yuan and other Asian currencies.

As has most often been the case since the sub-prime lending crisis ended the boom years of the previous decade, recyclers and traders will remain wary of any number of global events that might quickly change conditions in the volatile recovered fibre markets.

The author is editor of Recycling Today Global Edition and can be contacted at btaylor@gie.net.