Pandemic-related changes in recovered paper generation may be permanent

Analysts predict recovered fiber consumption in away-from-home tissue markets may be down for a while.

Domestic prices for most recovered paper grades declined in the June buying period. The U.S. average price of old corrugated containers (OCC) fell from $104 per ton in the May buying period to $73 per ton in June, while the national average price of mixed paper remained steady at $11 per ton in May and June, according to Fastmarkets RISI’s PPI Pulp & Paper Week June 5 report.

A broker on the West Coast says some domestic paper mills paid huge premiums for OCC in early May—as much as $110 per ton over Fastmarkets RISI’s PPI Pulp & Paper Week pricing. Yet those premiums were gone by the middle of May, he adds.

By early June, recyclers reported that many domestic mills were at capacity, and some had to take downtime that was initially scheduled for earlier in the year.

“There is risk that recycled fiber consumption in the away-from-home [tissue] sector could be smaller than it was before the pandemic.” – Sanna Sosa, principal consultant, AFRY Management Consulting

“Paper mills ran through the pandemic, and they have caught up now,” a material recovery facility (MRF) operator in the Midwest says. “Right now, corrugated is in bad shape. It could go down another $30 next month.”

“All of the big premiums are gone,” the broker on the West Coast says. “People are back to getting whatever they get in whatever areas they’re in. If you don’t have relationships in the domestic market, you’re probably having to resort to export at whatever price you can get export.”

He adds that some paper mills in Asia have increased their orders for OCC and double-sorted OCC from the U.S. in June in response to the lower prices.

Although OCC is struggling in domestic markets, the MRF operator in the Midwest says mixed paper seems to be moving better in June. He expects mixed paper to be in demand “until corrugated drops down to the value of mixed.”

However, with some businesses ramping up in the Midwest and stay-at-home orders loosening, he adds that mixed paper generation was down slightly in early June. He says some industrial and commercial generation came back, but he doesn’t expect long-term generation to return to prepandemic levels. “We fully expect long term that, of what we lost [in commercial generation], we’ll probably never see again, not because of lost accounts, but because it never will be generated again,” he says. “[Some] businesses have discovered working from home is not that bad and is cost-effective. At the end of the day, I think we’ll get less commercial-created corrugated moving forward.”

During the Institute of Scrap Recycling Industries (ISRI) Virtual Event: Spotlight on Paper webinar June 3, industry consultants shared that the tissue side of the pulp and paper industry has remained strong during the pandemic.

“At the end of the day, I think we’ll get less commercial-created corrugated moving forward.” – a MRF operator in the Midwest

“The retail sector or at-home sectors performed solid during COVID-19 and even to date as we see grocery stores with empty shelves,” said Jose Gonzalez, a senior principal at Stockholm-based AFRY Management Consulting.

While demand for tissue products in general is rising, away-from-home tissue products likely will struggle. “There is risk that recycled fiber consumption in the away-from-home [tissue] sector could be smaller than it was before the pandemic,” Sanna Sosa, a principal consultant at AFRY Management Consulting, said during the webinar.

She added that the pandemic could adversely affect demand for recovered fiber among containerboard plants. “Even before the pandemic, there were a lot of concerns among analysts and in general that there might be overcapacity developing in the North American containerboard market,” Sosa said.

Yet, demand from recycled pulp producers is rising. Joe Pickard, chief economist and director of commodities at ISRI, said recycled pulp exports have increased about 75 percent in the first quarter of 2020 compared with the same time in 2019 based on figures compiled from the U.S. International Trade Commission.

Both Gonzalez and Sosa were optimistic about opportunities for recycled pulp production to consume recovered paper. Gonzalez reported that about 4 million metric tons of recycled pulp capacity have been added globally since 2019.

July 2020
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