Commodity Report

While the first eight months of 2005 saw a steady market for the paper industry’s chief grade, the late third and fourth quarters have not been kind.

While overall worldwide demand for OCC is good, domestic hunger for the grade has been lagging, and the export market cannot pick up all the slack to keep prices strong.

Coastal operations have an advantage, but the scenario has been particularly damaging to the Midwest. Far away from ports, Midwestern packers have to pay more in transportation costs to take advantage of the export market. "When you’re getting into transportation costs, it’s getting to be a break-even operation," says one Midwestern packer.

Transportation costs can keep foreign buyers from even looking at the Midwest as a supply option, says one source. "It just costs too much to transport [material]," he says.

The loss of U.S. mill capacity has not helped the situation, either. One large mill closing in Michigan has been particularly damaging to the market in the Midwest, one recycler says.

One source says the current market conditions are being exacerbated by typical seasonal factors. "There’s a lot of OCC this time of year, so weakness is expected," he says of the effect of the holiday season on material generation.

But these are some of the weakest prices the market has seen in three or four years. One Midwestern packer expects OCC to bottom out at $40 per ton before things start to look up again.

Some sources believe an upturn is in the near future. One Midwestern recycler says a new mill is supposed to be coming online in Europe in 2006, which will consume a lot of Europe’s scrap fiber domestically. This means Europe will be sending less material to China, which could open up some export markets to the United States, he says.

This sense of optimism is bolstered by the fact that generation has remained strong.

Old newspapers (ONP) have faired slightly better. Demand is particularly strong for No. 6 news, one source says.

Sorted office paper (SOP), which has also had a tough year, has taken a dip in price. Some sources are expecting another drop in the first quarter of 2006. "The demand just isn’t out there," says one source.

"We didn’t want to end the year this way," says one packer. However, winter weather may bring some positive movement to the market. One source says demand could see a surge as mills in areas prone to bad weather look to build up inventories over the winter.

(Additional news about paper recycling markets, including breaking company news and pricing, is available online at www.RecyclingToday.com.)