<B>Low Grades Feel the Pinch</B>

Over the past several months the low grade market has been enjoying a strong rebirth. Over the past several months OCC, mixed paper and old news have seen steadily climbing prices. Some packers were expecting to see prices near or even topping the $200 a ton level at the mill.

This improvement may be coming to a screeching halt, as orders are starting to fall off across the country. Activity in the East Coast, West Coast and Midwest is starting to dry up significantly. A lack of export orders is creating a good deal of the problems. Several sources note that America Chung Nam has been sharply curtailing its orders for both old corrugated and old news. The company is one of the primary suppliers to China, which has been a key reason for the surge in bulk grade demand over the past several months.

There has been some anecdotal reports that many containers are stacking up at various ports in China.

Several forecasts also see OCC prices dropping sharply in the Northwest, with some larger consumers looking to cut prices by as much as $25 a ton. A number of domestic mills in the region are seeing much higher inventory levels, and are reducing the fiber they bring through their door.

At least at the present time there doesn't appear to be much concern with the extended Fourth of July holiday. With higher than expected supplies it doesn't appear there will be any big push by board mills to build up inventories.

Adding to the overall lackluster market offshore container availability is becoming a bigger concern. Several strategic ports are experiencing difficulties in obtaining equipment to ship materials. One exporter who ships out of the New York/New Jersey port area, says container availability is tough and getting tougher. He expects the situation to remain

At the same time, partly due to higher fuel charges, the freight rates have sharply increased. One caveat is that freight rates had been fairly low until the last few months.

While container problems are flaring up in many strategic locations, equipment availability is still decent at other locations.

The mood of the market, previously very upbeat, is starting to turn more cautious for more packers and brokers. More handlers of the grade see bulk grades declining over the next several months due to a combination of slumping offshore orders and high inventories of both raw materials and finished products.

Downtime is another issue for more paper stock dealers. More board mills are taking machines offline, reducing the demand for raw materials. Even mills that continue to operate are starting to sharpen their requirements. Rejections, for both domestic mills as well as offshore, are happening more often, as some mills look to keep their inventory levels from getting too far out of hand.

The slowing paperboard industry also is a reflection of the possible slowing of the overall U.S. economy. Recent figures from the Fibre Box Association show inventories at box plants increasing. The increase in inventories reflects in the slowing in demand for the finished product by end consumers.

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June 2000
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