New year begins with challenges in recovered paper market

Demand for recovered paper has remained strong at the start of the new year, but continued logistics issues have contributed to rising high-grade prices, particularly for sorted office paper (SOP) as facilities compete for supply.

There was hope that after the holidays demand would start to stabilize, but Melanie Harman of Duluth, Georgia-based Recycling Management Resources says demand for “white [grades] has been off the chart.

“I came back from the holidays and thought we’d have a more normalized January,” she adds. “Now we’re in a scenario where there’s not enough supply of SOP, so people are chasing and paying extra dollars.”

According to Fastmarkets RISI’s PPI Pulp & Paper Week report released Jan. 6, U.S. mill demand has driven up domestic prices for SOP by $10 per ton across the board. The report adds that prices for SOP and all deinking grades have increased for 11 months straight.

“Anyone with supply right now is in command,” Harman says. “We’re here in mid-January trying to make up for what they didn’t get in the first weeks of January. Will that come? I don’t know. I’m not seeing a positive yet where supply is going to start showing up. I don’t think it will improve enough to feed the beast.”

But when it comes to old corrugated containers (OCC), a supply-demand imbalance has decreased pricing in the U.S. for the third straight month.

An overabundance of OCC is in the marketplace party because of the holiday season and the associated increased generation. A broker based in the South says dynamics such as the holidays and weather can move the market by $10 or $15 per ton.

As mills fill with OCC, transportation issues are creating what the broker calls a “bottleneck in export [markets] that’s coming full circle.” OCC is available, but logistics issues continue to plague facilities nationwide, preventing them from sending much material overseas.

The transportation issues also are affecting containerboard mills’ ability to get their products to customers. “Mills are full. Machines are running 24/7 making new boxes,” the broker in the South says. “Domestic trucking shortages are impacting mills’ ability to ship cardboard out of the facility. I’ve heard a lot that the lead times to get new boxes are just through the roof. … That’s what’s driving downward pricing pressure.”

Harman adds that many industry professionals believe some of the immediate trucking backups would be resolved by mid-January after the holiday season was far enough in the past, but she says winter weather also has had a negative affect on transportation.

“Holidays disrupted the whole logistic plan, and we thought that would get behind us. Then we had a snowstorm that further exacerbated pickups and collections,” she says. “You can’t get it picked up and you can’t get it out the door.”

Unfortunately, many sources tell Recycling Today they anticipate transportation will continue to cause havoc in the market, at least in the first few months of the year. Another broker based in the South says the current situation is “not sustainable.”

Harman adds, “That transportation issue is not going away. You don’t have enough truck drivers; you don’t have enough assets. From a mill standpoint, their costs are going up exponentially. Having to pay more for fiber, pay more for trucking … it’s just an interesting time.”

With new facilities coming online this year, several sources tell Recycling Today they remain somewhat optimistic that domestic OCC prices could stabilize despite transportation issues. NORPAC, Celadon, Sonoco, Graphic Packaging International, Atlantic Packaging and Cascades all plan to add capacity that will be fed with recovered paper this year.

But 2022 looks to be a difficult year in the export market, particularly for SOP, as U.S. demand remains high. A broker based in the Northeast says, “It will be a difficult export year for recovered paper. Because local mills have such high demand, there is less tonnage going to export.”

The broker based in the South adds, “Demand for high grades is as strong as I’ve seen it in a year, and I don’t see that changing.”

The broker in the Northeast says patience is required as the market stabilizes and companies attempt to navigate winter weather challenges when it comes to collection. He says it’s a situation that might not start to normalize for several months.

He adds, “We’re waiting for the market to come back, so we need to be patient. We might see [OCC] prices go up again in February and March.”