Departments - Scrap Industry News

August 18, 2009


On the surface, paper stock markets seem to be showing signs of a strong recovery. Prices have picked up quite significantly, demand is strong, and China has been buying a fair amount of material.

However, digging a little deeper, several paper stock dealers note that the trend line could be pointing to a fairly significant downward correction during the next several quarters.

While price and demand have improved, much of the pickup has been a result of the steep drop in generation. Old corrugated container (OCC) prices have climbed, while generation of the material is down.

Paperboard mills in China, which have been running at a fairly brisk level, are ordering sizable loads of OCC. However, with the global economy still in the doldrums, more recyclers (as well as other market watchers) are asking whether much of what China is producing is being warehoused in light of limited demand for finished product. With so much inventory, it would be easier for Chinese mills to cut orders for OCC, which could leave more OCC available domestically.

Domestically, an issue that has generated a significant amount of attention, especially among dealers of bulk grades, has been the black liquor tax.

A number of U.S. paperboard mills have sought out the significant fiscal windfall the black liquor tax credit offers. According to a number of sources, the tax credit can be as much as $200 per ton. Companies seeking the tax credit can switch from using OCC in large quantities to using wood chips and non-recycled content and still be profitable.

One recycler notes that some mills are running full-out to maximize their black liquor credits. In light of lowdemand, however, these mills are then inventorying their finished products. As a result, when the tax credit ends later this year, mills may slow or close their paperboard machines as they sell off their accumulated inventories.

While OCC has been receiving the most buzz recently, other grades also have been trending upward.

With more communities moving toward single-stream collection programs, more mills have been adjusting their machines to handle the more diverse (and lower grade) of ONP (old newspapers).

One Midwestern recycler who handles a fair amount of single-stream material says that while traditionally ONP was a significant component of the recovered fiber stream, it is dwindling as mixed paper grows.

While generation of ONP has declined, newsprint production also has slipped, which is creating a somewhat balanced market for ONP.

The Indian government’s recently imposed policies calling for increased inspections of incoming recyclables shipments also is having a negative effect on the recovered paper industry. A report by the Bureau of International Recycling notes that the uncertainty surrounding the policy caused severe backlogs of incoming shipments at Indian ports and resulted in some steamship lines refusing to take containers to India because of the logjam.

(Additional news on paper recycling markets, including pricing information, is available at