Overwhelming oversupply, exports excluded

Departments - Paper

Recovered paper exports decline at year’s end.

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January 27, 2016

Export markets for recovered paper grades have declined as prices have dropped and certain countries continue to prove self-sufficient by recycling even more of the scrap paper generated internally. A broker and recycler based in the Midwest United States says “export is weakening,” though he predicts this halt will be temporary “when supply dries up” in January.

“Exports are definitely slowed down,” says another U.S.-based broker. Export prices to China for mixed paper, old corrugated containers (OCC), old newspapers (ONP) and sorted office paper (SOP) are down from $2 to $8 compared with November out of every U.S. port.

OCC (purple circles) Mixed Paper (black squares); *U.S. dollars per short ton for open market purchases by mills for delivery in December as reported by RISI’s PPI Pulp & Paper Week Dec. 7, 2015. Prices used with permission from PPI Pulp & Paper Week (incorporating Official Board Markets). Free trial available www.risi.com/rt.

“Market pricing depends on the export market, and in the absence of an export market, or what we’re now accustomed to as the regular export market, we may not see any positive market effect because there’s too much generation domestically,” the U.S.-based broker says.

He says Mexico is echoing China’s recent shift to recover as much scrap paper internally as possible. China has spent “billions of dollars” improving its in-house collection systems, and as Mexico’s peso continues to weaken against the U.S. dollar, it also has been increasing its collection of locally generated scrap paper.

The broker explains, “Mexico, because of the peso the way it is versus the dollar, they have backed off a lot [from buying paper stock from U.S. mills]. Mexico is trying to produce more internally to meet their needs.”

He adds that if recovered paper from the U.S. becomes more expensive, then China will work even harder to recover more of the scrap paper generated within that country.

Guo Yongxin of the China Paper Industry Chamber of Commerce resounded this sentiment at the 2015 RISI China International Recycled Fiber Conference, which took place in early December in Shenzhen, China, when he said, “If U.S. supply is expensive, the demand [for it] will go down.”

In addition, the U.S.-based broker says he has heard reports that China might implement another Green Fence-type initiative, holding imports of recycled materials to higher standards. “Which would make sense when there’s an excess supply, as they can be pickier,” he says of China.

Coming back to the U.S., OCC has an “overwhelming supply,” says the U.S.-based broker.

U.S. dollars per short ton for open market purchases by mills. Domestic prices are FOB seller’s dock for delivery in December as reported by RISI’s PPI Pulp & Paper Week Dec. 7, 2015, while export prices are FAS port of origin. *New York includes ports in northern New Jersey and LA includes Long Beach and LA ports. Prices used with permission from PPI Pulp & Paper Week (incorporating Official Board Markets). Free trial available at www.risi.com/rt.

The Midwest broker says his region is glutted with OCC, but he says he is confident that rail will be used to move the material economically outside of the region. “With rail, OCC can be sent to many areas that are buying OCC,” he says.

Higher grades, such as SOP and sorted white ledger (SWL), are not moving, he says. He points to an end-of-year slowdown for away-from-home towel and tissue consumption as a factor for the lack of movement among these grades.

“Market pricing depends on the export market, and in the absence of an export market, or what we’re now accustomed to as the regular export market, we may not see any positive market effect because there’s too much generation domestically.” – a U.S.-based broker

Prices for OCC are down $5 in more U.S. regions than not, while mixed paper saw a $10 drop in prices in the Buffalo, New York, area and $5 in each of the Southwest and Southeast U.S.

“If supply increases and demand doesn’t, prices are going to slip. We saw [in December] corrugated was down a bit,” the broker says.

Despite this, the Midwest recycler says he anticipates OCC and No. 8 ONP will see times of increased demand into 2016.

At the 2016 Specifications Summit, scheduled for Feb. 3-5 in New Orleans, the Paper Stock Industries (PSI) Chapter of the Institute of Scrap Recycling (ISRI), Washington, will hear from PSI members on proposed changes and ideas related to specifications for recovered paper.

In November 2015, PSI said it had dropped a proposed change to deinking No. 11 OCC under ISRI’s specifications that would require no more than 30 percent nondomestic OCC.

The update includes no identified limit on the amount of nondomestic OCC in No. 11 bales. The change says OCC “consists of USA domestic and off-shore corrugated containers having liners of either test liner or kraft,” according to PSI’s website, www.paperstockindustries.org/specifications.

For a free trial of RISI’s PPI Pulp & Paper Week pricing, please visit www.risi.com/rt.