Staying ahead of China

China’s Blue Sky initiative, which is designed to clean up the country’s environment and limit the import of scrap materials in an effort to consume more domestically generated scrap, has “really changed the landscape of paper,” said Leonard Zeid, vice president of the Paper Stock Industries (PSI) Chapter of the Institute of Scrap Recycling Industries (ISRI), at the association’s annual convention, ISRI2018, held April 14-19 in Las Vegas.

Zeid, who manages paper trading at St. Louis-based Midland Davis Trading, addressed attendees in the Spotlight on Paper session as the moderator. He and the session’s speakers discussed how to stay ahead of China’s changes.

“Historically, OCC prices go up when containerboard demand is strong. However, there has been an interesting divergence in the last several months.” – Ketan Mamtora, BMO Capital Markets

Speaker Ketan Mamtora, vice president of BMO Capital Markets, Toronto, focused on the containerboard sector. As the largest commodity produced by the paper and packaging sector, Mamtora said most of the growth in global containerboard capacity in the last three decades has been from recycled fiber. It has been a couple of decades, he said, since any new virgin mills have opened in the U.S.

“As recycled-content capacity has grown, the draw on recycled paper also has,” Mamtora said.

“Historically, OCC (old corrugated containers) prices go up when containerboard demand is strong,” he continued. “However, there has been an interesting divergence in the last several months.”

Prices for secondary fiber grades in the U.S. as of mid-April averaged about half of what they sold for one year ago, said speaker Greg Rudder, lead editor at Boston-based RISI’s PPI Pulp & Paper Week. He spoke to what he called “monumental changes in this industry.”

At $74.50 per ton, OCC pricing is less than half its April 2017 price of $151.67, according to RISI’s April 5 P&PW Yellow Sheet. That price is close to what mixed paper sold for in April 2017, when the grade averaged $73.06 per ton. At $3 per ton in April 2018, mixed paper pricing has declined substantially since then.

Domestic pricing dropped across the board for OCC, mixed paper and sorted residential papers and news (SRPN) by a range of $5 to $20 per ton. Sorted office paper (SOP) saw the only gains, adding $10 per ton in every U.S. region.

As in March, mixed paper and SRPN sold for the same price per ton FAS (free alongside ship, meaning the seller must deliver goods to a named port alongside a vessel the buyer designates) to Asia. (Rudder noted that RISI has changed the destination of mixed paper and SRPN assessments for its export pricing to Asia from China.)

In China, domestic OCC pricing is vastly different than in the U.S. “The price for local OCC in China is very, very high,” he said. “We see it as a crisis that’s going to happen rather than one right now.”

“Fifty-six percent of China’s reduction year over year was picked up by the Asia-6.” – Greg Rudder, RISI

Rudder questioned how China would be able to find enough fiber internally to feed its paperboard capacity. With 2018 recovered paper imports into China down to a range of 4 million tons to 6 million tons, Rudder said the shortfall ranges from 10 million tons to 12 million tons relative to the same time last year.

To emphasize this shortfall, he showed a PowerPoint slide outlining U.S. exports to China as well as to what Rudder called the “Asia-6”—India, Indonesia, South Korea, Taiwan, Thailand and Vietnam: From September 2017 to February 2018, the U.S. shipped 680,290 metric tons of recovered fiber per month to China, a 38 percent drop from that same period one year earlier when 1.104 million metric tons were shipped. Conversely, the U.S. exported 506,953 metric tons of secondary fiber to the Asia-6 from September 2017 to February 2018. This is an 88 percent increase from the 269,625 metric tons exported there in the same period previously.

“Fifty-six percent of China’s reduction year over year was picked up by the Asia-6,” according to Rudder. “Where will they be six months from now?”

India will become a bigger buyer, he said. Vietnam also will be a more prominent export market for U.S. recovered paper.