OCC, mixed paper demand in flux; experts say it's 'not going anywhere'

Market dynamics for many grades of recovered paper have been hard to keep up with over the past several years, as economic conditions, new mill capacity and other factors have impacted conditions. But, during a mid-September webinar hosted by Fastmarkets, panelists said the demand for recovered paper “is not going away anytime soon.”

“It’s only going to continue to grow because of the new capacity coming online,” Fastmarkets Forest Products price reporter Megan Workman said during the webinar. “That new capacity is able to take in more mixed paper, and that’s absolutely what they’re doing. They’re taking in more volumes of OCC [old corrugated containers] and mixed paper than ever before.”

Workman was joined by Hannah Zhao, Fastmarkets Forest Products director of fiber, for the webinar titled “Recovered paper outlook for the North American market,” which focused mostly on OCC and mixed paper markets.

According to data published in late August by the Washington-based American Forest & Paper Association cited by Fastmarkets, total recovered fiber consumption from January to June at U.S. paper mills increased 6.8 percent, or more than 1 million tons, compared with the same period in 2023.

The AF&PA reports that U.S. mills took in 16.44 million tons the first half of this year versus 15.4 million tons in the first half of 2023.

The organization also reports that U.S. mills took in 8.2 percent more OCC in that period, consuming 12.34 million tons compared with 11.4 million tons in the first half of 2023, while mixed paper consumption increased 3.9 percent year over year, with U.S. mills consuming 1.91 million tons the first half of this year versus 1.84 million tons the first half of last year.

However, the U.S. OCC market, while finally stabilizing a bit this year, has been in decline since late 2022 and, as it softened, the Chinese domestic OCC price declined around the same pace, Zhao said.

“We all know the recovered paper market, particularly the OCC market, is a global market, so the North American market is tied closely with other regions, particularly Asia,” Zhao said.

“The sluggish Chinese economy slowed both the Chinese and Southeast Asian paper packaging sector and therefore slowed their demand for recycled fiber, including their imported demand for U.S. OCC,” she continued.

On the demand side, the more than 2 million tons of new recycled paper mill capacity that has started up over the last year in North America has been “the fundamental factor” behind a stronger OCC market, Zhao said, but as that wave of new capacity has subsided, demand has normalized.

“The supply side slowly, gradually caught up,” she said.

In terms of supply, Zhao notes two main sources of OCC in North America, and the domestic source is related to box shipments while the external source is related to the import of consumer goods to the U.S. She estimates about 25 percent of total U.S. OCC is collected from the import channel.

“If we combine the domestic and the external sources together, we would say U.S. OCC supply was very tight last year,” Zhao said. “It improved slightly recently, but it’s still at relatively low levels. That’s consistent with what we saw in U.S. OCC price.”

She also noted that decreased OCC generation reduced U.S. OCC exports the first half of this year.

According to Fastmarkets data, U.S. OCC exports slid by 13 percent last year and, while exports to Canada and Mexico more than doubled, U.S. OCC exports declined another 11 percent the first half of 2024. Exports to Asia, in particular, declined by 18 percent because of the sluggish Asian paper packaging market and overall weak demand for recycled fiber.

Zhao said the healthier U.S. demand for OCC also limited the material available to export.

Looking forward, Zhao said North American recovered paper demand, particularly OCC and mixed paper, will grow alongside expanding recycled paper and board capacity.

“Most of the new containerboard capacity will continue to run on recovered paper in the near and medium term,” she said. “This will be the base for more recovered paper consumption in the future and the growing domestic demand will mean there will be limited recovered paper available to be exported.”

In 2018, net exports accounted for about 40 percent of total U.S. recovered paper collection, but that share already dropped to 30 percent last year and Zhao expects that drop to continue.

She also said that despite the drop in export market share, the North American market will continue to be impacted by Asia, and that she has “no doubt” the Asian market will see growing demand for recovered paper because of its growing packaging production.

“Asian domestic collection will improve, but at least in the near term in this region, its supply cannot catch up with its demand. It will have to rely heavily on imports, especially the recovered paper from North America because of the higher fiber quality U.S. recovered paper has,” Zhao said.

“The European Union has an EUDR [European Union Deforestation Regulation], which is likely to encourage European paper mills to use more recycled fiber domestically, and that could leave less recovered paper available to be exported from Europe. That means, potentially, Asia knows it may have to buy more recovered paper from North America and that will add extra pressure on the North American demand-supply balance.”

As far as mixed paper supply helping curb the OCC supply-demand balance, Zhao said the mill side and supply side are “running at exactly the opposite direction.”

“Suppliers have more motivation to get more high-value OCC out of the waste stream, however, … in the past several years, we saw North American paper producers adopt new technology to utilize more mixed paper [as well as] some new containerboard and boxboard capacity running more mixed paper,” she said.

“On the supply side, MRFs have improved their sorting to get more OCC from the stream and, therefore, that limited mixed paper,” she added. “That created a tension in the mixed paper market the past two years.”

The average price gap in the U.S. so far this year between OCC and mixed paper is about $35 per ton, Zhao noted, down from an average $50-per-ton gap seen in the late 2010s and early 2020s, but still up from an average of $25 per ton in the early 2000s.

“We believe the OCC and mixed paper balance will not be static, but dynamic, because both paper producers and recovered paper suppliers can adjust their system according to market dynamics,” she said.