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Recovered paper demand has not slowed down

Recyclers and brokers say demand continues to outstrip supply, which has pushed prices up for all grades of recovered paper.

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August 16, 2021

As the year progresses, demand does not appear to be slowing down for recovered paper. Many recyclers and brokers say demand far outstrips available supply, which is pushing prices for all grades of recovered paper higher each month.

“In the Northwest, we are fortunate to have mills in the area that use recovered fiber, so there’s good strong domestic demand,” a material recovery facility (MRF) operator in the Pacific Northwest says. “Most of the paper mills in the Northwest, I don’t think inventory levels are what they would call comfortable. I think their inventories are lower than average.”

As long as the economy remains strong, the MRF operator says he anticipates that will translate to continued strong box demand.  

A broker in the Midwest says box plants are “running gangbusters,” but there is not enough recovered paper out there to meet that demand.

He says the semiconductor chip shortage has adversely affected generation of old corrugated containers (OCC). “A lot of OCC is generated in semiconductor chip production,” he says. “There are a lot of headwinds, all of which create shortages. We see that the chip shortage has affected volume out of our dealers.”

Recyclers say recovered fiber generation is up compared with one year ago when more COVID-related restrictions were in place, but it has not kept up with the present demand. A broker based on the East Coast says he has noticed generation of recovered paper slip a little since the spring.

“It’s the summer doldrums—everyone is on vacation, and things slow down with supply,” he says. “Normally I see a pickup in supply toward the end of summer. I’m worried that I’m not going to see that, and things remain slow.”

Because some mill inventories are low, a recycler in the Southeast says some domestic mills he has talked to are buying tons from across the country to try to secure materials. “Mills are reaching out 1,000 miles outside of their typical wood basket to look for tons,” he says.

With hot demand, prices continue to rise for recovered paper grades across the board. In the August buying period, OCC experienced the largest jump in price of all recovered paper grades.

While demand for all recovered paper grades has been strong this summer, it has been significantly stronger for OCC as suppliers attempt to keep up with e-commerce and packaging demand. Some recyclers and brokers say domestic mills are offering to pay prices way above the average national price as well as offering very high premiums to secure that material.

In addition to rising recovered paper prices, paper mills are raising the price of paperboard, containerboard and packaging. In mid-August, Sonoco and Greif raised prices for all grades of uncoated recycled paperboard by $70 per ton.

“You’re seeing a lot of price increases being announced,” the recycler in the Southeast says. “I think all of the majors have announced anywhere from a 12 to 15 percent increase in their box prices, which is huge.”

Many packaging producers that operate mills also are doing well financially. In late July and early August, several large packaging producers, such as Atlanta-based WestRock, reported record revenues in their latest earnings reports. These producers also say box shipments are up this summer.

“Demand continued to be strong in the key markets we serve, including e-commerce, food, beverage and industrial,” said David Sewell, chief executive officer at WestRock, during the company’s earnings presentation Aug. 5. “North American per day box shipments were up 9 percent year over year.”

Although mills outside of the U.S. also need recovered paper to produce packaging materials, export demand has been a little soft compared with domestic demand in light of the high prices. Recyclers and brokers say mills in India and Southeast Asia need recovered paper, but many of them are holding out to see if the current high prices will drop, particularly as ocean freight rates also are high right now.

“They want the material, but they don’t want to pay the high prices,” the broker on the East Coast says. “They are dragging their feet on placing new orders. But, eventually, they are going to have to. [Prices are] not going down like they are hoping.”

While markets can change quickly and recovered paper prices won’t be on an upward trajectory forever, recyclers say it’s unlikely that the current demand will slow down overnight, nor do they expect prices to take a big dip in the near-term future.

“We’re in a commodity price increase environment, and we’re enjoying the benefits of that right now,” the MRF operator in the Pacific Northwest concludes.