Still heating up

Departments - Commodities Paper

Recovered paper demand has not slowed since it began to ramp up earlier this year.

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August 30, 2021

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

“In the Northwest, we are fortunate to have mills in the area that use recovered fiber,” 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.”

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

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.”

”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.” – a broker on the East Coast

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 U.S. to try to secure materials.

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. According to Fastmarkets RISI’s Aug. 5 PPI Pulp & Paper Week, the national average OCC price hit $159 per ton in the August buying period.

While demand for all recovered paper grades has been strong this summer, demand has been very strong for OCC as suppliers attempt to keep up with e-commerce 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.

“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.

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.

Recyclers say it’s unlikely demand or pricing will decrease overnight.

“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.