Where do we go from here?

The e-commerce boom of 2020 and 2021 is long over, and paper and packaging companies have been confronting how to navigate the current market landscape as box demand hit rock bottom earlier this year and old corrugated containers (OCC) pricing followed.

“Forecasting OCC prices is an incredibly difficult thing, and one of the reasons is it’s one of the most volatile commodities in the world,” said Bill Moore, moderator of the session Corrugated Boxes, Containerboard and OCC: Where Do We Stand? at the Paper & Plastics Recycling Conference (PPRC) in Chicago in October.

Moore, president of Atlanta-based paper consultancy Moore & Associates, was joined by panelists Ryan Fox, corrugated packaging market analyst at Bloomberg; Shawn Logan, director of commodity sales at Houston-based WM Recycling Services; and John Grinnell, vice president and general manager of Delaware, Ohio-based Greif Inc.’s recycling business.

U.S. box shipments peaked in 1999 and were down for a dozen years when China became the “manufacturer to the world,” Moore said, noting that it took e-commerce to change that.

In 2011, e-commerce began to increase, inflating box shipment numbers in a run-up that culminated in the online shopping boom during the COVID-19 pandemic. “We’ve had a box recession since then,” he said.

Big changes in box demand

From 2020 to 2023, approximately 5 million tons of containerboard capacity have come online, most of which consume recycled fiber, according to Moore.

“But there have been 12 capacity shutdowns in the last year with the box recession that we’re going through, and it took out almost half of that capacity,” he added.

In February 2023, the Fibre Box Association, Itasca, Illinois, released data revealing an 8.4 percent decline in 2022 fourth-quarter box shipments compared with the previous quarter—the largest decline since 2009—and the lowest cardboard manufacturer operating rates since 2009 at 80.9 percent.

The news wasn’t much better several months later, when Jeffrey Kleintop, managing director and chief global investment strategist at Charles Schwab & Co. released a report in line with other analysts, predicting continued low box demand.

During the PPRC session, Fox presented similar data that showed box demand has continued to decline throughout the year. “If you look at demand trends, if it continues to track the way it has been tracking, we will continue to see this overall trend line go down,” he said.

Fox projected December box demand will be flat year over year, which he said is not necessarily a great story. “Last December was horrible—one of the worst [months] ever [for box demand],” he said. For about 50 years, Fox said average box consumption per capita was about 1,200 square feet per person. For the first time in several years, his data showed this year’s average per capita consumption dipping below that to about 1,140 square feet per person.

“Everyone wants to know if we’ve hit bottom yet,” he said of box demand. “I don’t know.”

Where is all the OCC?

With the many notable containerboard startups in the last year, a big question on the minds of mill operators, in particular, is where the feedstock will come from if the cardboard box recession continues.

But the panelists agreed supply is not an issue, and Moore noted the industry is not running out of OCC because a “fair amount” gets disposed of with the potential to be recovered.

“Europe and developed Asia and the U.S. are all pretty close to maximum recovery,” he said. “There are still under-recovered sectors, like multifamily and small commercial, and we hopefully are going to continue to use more boxes every year, so we’re not running out.

“Developing Asia is increasing [its] recovery—recovery in places like India, Indonesia, Vietnam and Thailand [is] fairly low—so they can grow their recovery, and that will make more OCC readily available,” Moore continued.

He projected that from 2011 to 2025, OCC supply is going to grow from 29 million tons to 36 million tons, and containerboard will grow from 40 percent of the market to 59 percent. “It’s all about OCC and containerboard,” Moore said.

Logan said OCC already is flowing through material recovery facilities (MRFs). WM manages approximately 15 million tons of total material, and most of that volume is paper, he said, with 35 percent of that being OCC.

In terms of reduced supply, Logan suggested examining MRFs’ residuals. WM has invested heavily in its MRF operations over the past several years and reports a 51 percent reduction in the volume of recyclables that end up in residue. “We’re looking at incremental volume,” he said. “You don’t have to go out and get new accounts to then get some new OCC—it’s already there. … There’s good material in [residue] that the technology thus far just hasn’t been able to capture, [but] we’re getting close on that.”

Moore predicted a slight decline in OCC exports into next year, seeing that as a factor that will increase domestic OCC supply.

For Grinnell, that spells good news for Greif, which manages approximately 4 million tons of recovered fiber annually and consumes primarily OCC at its mills, producing containerboard, coated recycled board and uncoated recycled board.

“When we see a pickup in containerboard production, it’s going to take a while for that stuff to come through the supply chain and emerge again as supply of recycled fiber to our system,” he said. “It’s going to be an extended period before we really see supply resumed to the level that we did.”

“What we’ve seen is an increase in OCC prices over the last six months,” Bloomberg’s Fox added. “This is mainly driven by reduced supply. Why reduced supply? Well, contrary to popular belief, there’s this thing called the recession, and you may not think we’re in it, but I do say we’re in it.”

Getting the best price

Despite the slight price increase, OCC still is not fetching nearly as much per ton as it was in late 2021 and early 2022. At its peak last year, the national average OCC price was $130 per ton. It then tanked to $30 per ton by the end of 2022.

By November of this year, the average U.S. OCC price was $75 per ton thanks to an eight-month run-up, and Moore said the market likely had hit bottom at the end of 2022 as prices continued to rise.

He compared the volatility of OCC on a quarterly basis with other commodities such as copper, cotton and brent crude oil. When averaged out, OCC is one of the most volatilely priced commodities in the world, Moore said.

“The question a lot of us get … is, ‘How in the world can OCC prices be going up when there’s so much downtime [and] so little demand in the industry?’” Grinnell said. “It seems counterintuitive.

“Capacity and demand are two different things, right? We know there’s a lot of underutilization of capacity right now, but that doesn’t change the fact that a lot of where the consumption is occurring and who’s doing the buying has changed.”

When looking at pricing and demand, Grinnell said choosing a reference point makes all the difference. For example, if the reference point is when packaging demand was “as good as it’s gotten” in the first half of 2022, the story of today becomes the bottoming out of the market. But, if the reference point is early 2023 when OCC pricing hit its trough, “we see it’s a pretty different story,” he said.

“It’s modest, it’s moderate, it’s incremental, but our industry, and particularly OCC, reacts to incremental change,” Grinnell added. “Pricing moves with relatively small shifts in supply-demand and, in this case, the demand has actually seen a relatively positive trend since we got to that trough.”

He suggested using technology to frame a more realistic picture of where the industry is headed at any given moment. “When I want a hotel room, do I pick up my phone and start making calls? I did that 20 years ago, but I don’t have to do that anymore,” Grinnell said. “We live in a world where a lot more is possible with technology; we don’t have to keep doing things the way we did them 20 years ago, and I think that kind of visibility and real-world data would help guide the industry to a more realistic view of where things are headed.

“Nobody can predict what’s going to happen to the price. There’s a lot of things over the long term that [can] continue to support the price of OCC. We’ve got inflation working against us, we’ve got lower economic activity domestically and overseas that’s working against us, and these things will recover as we go through time.”

Moore added, “When we look at the world growth demand by grade, it’s really pretty clear to see that OCC … is where the action is.”

The author is managing editor of Recycling Today and can be reached at mmcnees@gie.net.