Although 2011 and 2012 have been characterised by anxieties centered on economic contraction, as of late summer 2012 there remains keen global demand for recovered fibre.
Far less encouraging, especially in Europe, is the lacklustre generation of recovered paper. As of late August, one Dutch recycler characterised generation as “slower than anyone would have expected.”
Even accounting for summer historically being a slow season, the European recycler said volumes of all grades in which he trades have been woeful. “Across the board, collection rates are not up to a level where people expected they would be,” he comments.
Industrial production figures in Europe have reflected the dormant state of manufacturing in that part of the world. Nations in Southern Europe in particular, such as Spain and Italy, are seeing their monthly industrial production levels erode quickly throughout 2012. (See the chart below.)
Recovered fibre prices have remained relatively stable in late summer, despite the tightness of supply. Recyclers cited a lack of export orders as keeping demand in check.
“Supply is predominantly now being absorbed, in the last month, by European mills,” says the Dutch merchant and exporter. “Because of the limited supply, the European mills are absorbing it.”
Regarding the lack of exports, he notes that after shipping rates from Europe to China “went up drastically in January” mills in China sought supply from North America as a first option. The Dutch recycler also said mills in China overall are “buying less fibre . . . because their exports of finished goods have diminished.”
The decline in orders from China is manifesting itself in North America with a drop-off in demand for mixed paper, which has experienced demand and price erosion in North America in the late summer. Also helping to keep mixed paper prices lower has been some concern over low-quality shipments of the grade. Given those market conditions, mill buyers in China have been gravitating toward old corrugated containers (OCC) if the grade is available in suitable amounts.
As the summer holiday season ends, it is unclear to what extent either generation or demand will increase. “In September and October, I expect demand from European mills to go up again,” says the recycler, “especially in the packaging sector. There probably also will be more demand from China. Addressing that demand will be a problem if collection stays that low.”
That scenario is likely to cause a spike in prices that will be unwelcome by Chinese mill buyers. “During the summer, Chinese mills have been trying to force the prices down, but merchants here don’t need to accept that,” says the broker. “They have such low inventory and domestic mills are buying, so they don’t need to sell overseas.”