A shifting market

The mixed paper and particularly the old corrugated containers (OCC) markets have been described as volatile, problematic and unpredictable during the past few years, but the latest market dynamics are unlike anything many in the recovered fiber industry have seen before.

“The word I would use for the OCC and mixed paper market today, and it’s not a word I’ve ever used before, I don’t think, is ‘weird,’” says Myles Cohen, principal of the Georgia-based advisory firm Circular Ventures LLC.

“There was a really, really soft market for OCC and mixed paper in the first half [of the year], and usually there’s a counterbalance with export, but there really wasn’t this year. Export is also weak, although there are signs of [it] picking up.”

The signs are not necessarily reflected in the prices, however.

OCC pricing remains down considerably from the highs of 2021. According to Fastmarkets RISI, the average U.S. OCC price in July is down 61 percent from the same month last year, and analysts from the recovered fiber, packaging and consumer segments alike have indicated the U.S. is in a “cardboard box recession.”

Experts point to data from the paper industry that reflect a challenging 2022.After box shipments grew 5.7 percent in 2020—the fastest growth in 27 years—paper industry veteran Bill Moore of Atlanta-based consulting firm Moore & Associates previously said last year’s 3.8 percent decline wiped out two-thirds of that growth, the worst corrugated box decline since the Great Recession in 2009.

In February, the Fibre Box Association, based in Itasca, Illinois, issued a report in line with Moore’s assessment, noting box shipments fell 8.4 percent in the fourth quarter of last year—again, the worst since 2009—while cardboard manufacturer operating rates for the quarter also were the lowest since the Great Recession.

The effects of last year have carried into the first half of 2023 and seem likely to persist through the second half, sources say.

The first-quarter boxboard report from the American Forest & Paper Association, Washington, shows total boxboard production was down 5 percent compared with the first quarter of 2022, while the boxboard operating rate was 87.8 percent, down 6.1 percentage points from last year.

“The big thing that’s going on right now is that generation is really, really low,” Cohen says, adding that his contacts report generation at material recovery facilities (MRFs) has declined by 10 percent to 25 percent in terms of tonnage. “All the MRFs I speak to are saying generation of not only paper coming into the MRF but [also] plastics and metals, everything is down.”

Packaging and the e-commerce effect

Generation has been affected by several economic factors. Since last year, consumers have shifted from spending money on goods to spending money on services, and the reversal of the e-commerce boom of 2020 has affected volumes of OCC and mixed paper showing up at MRFs.

“People are back shopping in stores, so e-commerce is down,” Cohen says. “Boxes coming into houses are down versus what it was [during the pandemic] because now people are back to going to Target and coming out of there with a plastic bag instead of a box getting shipped to their house.”

It’s not simply a shift away from e-commerce that’s affected the box business. Companies are facing increasing consumer pressure to reduce packaging. Amazon, for example, reports a 38 percent decrease in per-shipment packaging weight since 2015 and has eliminated more than 1.5 million tons of packaging. Specifically, Amazon has reduced its use of corrugated boxes by more than 35 percent.

Amazon has nearly 38 percent of the global e-commerce market share, according to Statista, with the next biggest player, Walmart, having just 6.3 percent, so, the retailer’s move to more custom packaging and its reduction in corrugated boxes significantly affects the OCC market.

“They’re using lighter-weight papers, too, and although you say, ‘A box is still a box is still a box,’ if you multiply billions of boxes—literally billions—by a couple ounces each, the box is the same size, but the thickness of the papers isn’t,” Cohen says. “It makes a big difference.

“All of a sudden, [there are] millions of shipments every day, and the boxes are getting smaller, there’s less airspace in boxes, and all that adds up. That’s not coming back. That’s a permanent shift in the marketplace for OCC, quite frankly.”

Cohen, however, does say the focus on e-commerce could be a bit overblown, noting that the spike in online retail during the coronavirus pandemic was not built to last.

“All of a sudden, nobody was going to stores and there was this big spike—that was never sustainable,” he says. “What’s happening in e-commerce, it’s a factor and it’s important, but it’s a big mistake to put all your analysis on e-commerce.

“The containerboard market is about a 40-million-ton market … [and] 90 percent of the OCC [and] containerboard market is not e-commerce.”

A more significant market factor than e-commerce, Cohen says, is packaging companies finding innovative ways to use recovered fiber other than in a traditional cardboard box.

Innovations that target monomaterial paper packaging, including that of global packaging producer Huhtamaki, WestRock’s CanCollar X fiber-based beverage multipack holder and even Absolut Vodka’s new paper-based bottle that is being sold in a three-month pilot test in the United Kingdom are just a few creative ways consumer packaging and paper companies have found nontraditional uses for fiber.

“Over a long period of time, there’s going to be less [recovered fiber] used for containerboard and more used for folding cartons or other innovative packaging solutions,” Cohen says. “[Companies] are moving to paper dunnage material because of consumer pressure to get out of plastic. … You’re going to see an increase in other types of recovered fiber needs because of plastic replacement. It’s happening everywhere.”

A glimmer of hope

While the OCC and mixed paper markets remain relatively weak compared with last year and especially compared with the highs seen during the pandemic, Cohen says there’s optimism around consumer spending, particularly with the 2023 holiday season, which is providing some hope to recovered fiber consumers.

“I think there’s optimism that we’ve hit bottom,” he says. “People are spending more and more on services right now … but I think, generally speaking, these containerboard companies are thinking that eventually the consumer is going to have to start buying goods again, so how long can this last?

“Some of the decline is permanent because of downsizing of packaging and lightweighting of packaging. … It’s a permanent, seismic shift in the marketplace. But on the flip side, the economy, I think, will start to turn around because retailers have been pushing down inventories because of slow sales. I don’t think they could get any lower; they’re going to have to start building inventories again.”

“The economy, I think, will start to turn around because retailers have been pushing down inventories because of slow sales.” – Myles Cohen, principal of Georgia-based advisory firm Circular Ventures LLC

Other analysts Recycling Today contacted tend to agree with that assessment, noting the impending back-to-school and holiday seasons likely will drive up pricing a bit as mills anticipate feedstock needs.

“I think we’re going to see OCC—it’s not going to happen in the next month—but I think in the next 90 days, you’re going to see containerboard mills get nervous that they don’t have enough inventory,” an analyst based in the South says in mid-July. “Because of low generation, you will see mills starting to get nervous, and they’re going to push up the price because they’re going to be afraid they’re not going to get the feedstock they need to run their paper mills.

“I feel like we’ve hit bottom,” the analyst adds. “It’s a weird market right now because I think you’re in the middle of this shift that’s going on in the marketplace between low generation and containerboard mills that are starting to feel a little bullish about volumes [they’ll] need in the third and fourth quarter of this year.”

“I think recovered fiber is still sexy,” Cohen says. “It’s not going away.”

The author is managing editor of Recycling Today and can be reached at mmcnees@gie.net.