Near-Term Corrections, Long-Term Strength

After surging markets for many paper stock grades throughout most of 2010 helped to drive prices to near record levels, several paper stock dealers say they expect to see a modest correction in prices for a number of grades during the first few months of 2011.

*Index is based on 1982 average prices as 100; Source: U.S. Bureau of Labor Statistics

While the post-holiday slowdown in manufacturing typically plays a role in softening recovered fiber markets, the Chinese New Year, which falls in early February, also contributes, as orders from China decline in light of the holiday. This decline will most likely affect old corrugated containers (OCC) and mixed paper.

Even with an expected softening in orders from domestic and offshore mills during the beginning of the year, paper stock dealers’ sense of optimism remains fairly strong throughout the country. Domestic paper mills have built up their raw material inventories and have pushed through a number of finished product price increases, a signal of market strength. Paper stock dealers say the biggest challenge remains the lack of supply for many paper stock grades. In addition to OCC being in tight supply, some pre-consumer generated grades, especially from print shops, are becoming scarcer as the overall number of printers decline.

However, one paper stock dealer remains optimistic about future generation. He says that as the economy steadily improves, fiber generation also should improve. Domestic paper production, which has been steadily improving since bottoming out in early 2008, should continue its upward trend.

Reflecting the improving domestic paper industry, November production figures from the American Forest & Paper Association (AF&PA), Washington, D.C., reveal that for the 13th straight month, containerboard production had increased from the same time relative to 2009. However, according to the AF&PA’s “Printing-Writing Paper Report,” total printing-writing paper shipments decreased 2 percent in November 2010 compared with November 2009. Two of the four major printing-writing grades (uncoated mechanical, uncoated free sheet, coated free sheet and coated mechanical) posted increases compared with November 2009, while one remained essentially flat. Coated mechanical year-to-date shipments lead 2009 for the 11th consecutive month, while inventories are 22 percent lower than year end 2009, the AF&PA notes. Total printing-writing paper inventory levels increased 3 percent compared with October 2010, the association reports.

With generation challenging for many grades of recovered fiber, prices could find themselves trending upward again, especially if Chinese buyers re-enter the market to purchase sizable volumes in March of this year following the conclusion of Chinese New Year festivities.

(Additional information on secondary paper markets, including breaking news and consuming industry reports, is available from SDB’s sister publication Recycling Today at www.RecyclingToday.com.)