<B>Where Do We Go From Here</B>

Paper stock markets have been residing in the doldrums over the past several months. Despite some positive indicators about markets rebounding early next year, there doesn’t appear to be much in the way of any upward momentum for most grades.

For old corrugated markets there appears to be minimal indications that board mills have been able to get their inventory levels under control.

Weather problems could help firm up the situation early next year. At the same time the short-term market conditions have created some tough markets for a number of grades.

A concern lately has been the sharp decline in OCC. The grade had been fairly flat as of late. Recently, several brokers have reported export markets for OCC have been dropping. Several sources note of less material being sought by Asian mills. Any decrease in the amount of fiber being shipped overseas will likely have an impact on domestic mills. According to one West Coast vendor prices for select OCC has dropped by more than $20 a ton over the past month. This decline is hammering some suppliers who may be sitting with high inventories on hand.

On the East Coast a number of exporters also are reporting a slowdown in OCC demand offshore. Whether this is a short-term situation or something that may grind on for several more quarters is still uncertain.

The Southwest also is seeing some difficulties. The OCC market, which had been holding up fairly well over the last few months is seeing some slipping. Part of the problem has been the move by Mexican mills to extend payments for OCC. The stretching out of payment is forcing some vendors to redirect tonnage away from some large OCC buyers in Mexico toward other sources. While Mexican buyers are looking to slow their payments, packers who are redirecting tonnage to U.S. mills in the Southwest are finding high inventories, reduced run times and some downtime curtailing any significant demand for most of the grades.

One of the largest buyers of OCC from the Southwest, International Paper’s Mansfield, La., board mill, has made a switch to focus more on the mottled white linerboard. This change is further reducing their demand for OCC from the region.

At the same time the mill is using more deinking and office grades. Despite the switch, there doesn’t appear to be any sharp improvement in that grade over the next several months.

The consensus appears to be that OCC will see a modest $5 a ton decline in the Southwest. While not as sharp as other regions of the country, the decline indicates that the rest of the year may be experiencing continued oversupply of raw material on hand.

Market conditions should start to firm up early next year. With prices for OCC fairly low throughout the county, inventory levels are expected to be further depleted by early next year, setting up a more robust market for a number of grades.

In the Midwest stability seems to be the word. While there have been some concerns about mills shutting down, at the present time there hasn’t been any significant shifts in price for OCC. The grade seems to be holding, although the price level is far from the level seen earlier this year.

Double-lined kraft cuttings also have been seeing steady declines in both price and demand. With the plethora of substitute grades on the market, the spread between DLK and OCC has narrowed significantly. The question some are asking is how low can the grade drop before there is a rally.

Pulp substitutes continue to see downward price pressures. Orders are starting to slow. The most apparent reason for the sharp drop in pulp substitute prices has been the oversupply of market pulp. With market pulp producers hoping to firm prices for early next year a significant amount of downtime is being taken to reduce the supply of market pulp.

Reflecting the softening high grade market, more pulp mills, both in North America as well as Asia, are opting to take more downtime to bring supply and demand back into balance.

The downward pressure is being made as pulp producers look toward the first quarter of next year when they hope to push through another price increase.

Old news markets may start to see some slowdowns. Deinked news had been immune to many of the problems afflicting OCC through the fall. While the trend appears to be up, short term several packers report of mills in the United States getting fairly full of raw material. Prices are starting to flatten out, with some sources noting prices decreasing. Whether this trend continues through the rest month is still uncertain.

While the old news market has surprised many people, it now seems like there has been some softening in the grade lately. A number of East Coast recyclers see a decline in offshore orders for the grade. At the same time, a number of U.S. and Canadian mills are seeing this weakening of offshore orders and looking to cut their own purchases.

Prices are primed to dip this month for the grade. The decline follows several months of stronger prices.

Along with  softening markets for ONP it appears that mixed paper prices are starting to show some softening. Demand for the grade earlier this fall had pushed price for the material to a level close to OCC prices. The improvement of the grade is partly attributed to strong buying by Chinese interests earlier over the past several months. Although demand for the grade is still stable, it appears prices have peaked for the short term. Prices may begin dipping this month.

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November 2000
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