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The dog days of summer is a cliché that at times has applied to paper stock markets, but the first half of this summer seems to be translating into steady to strong pricing for most paper stock grades in North America.
While the price strength is promising, some paper stock dealers are expressing concern that the price spike is happening while the overall U.S. economy is struggling. In fact, several say the economy seems to be worsening, which could make for a more difficult environment for the domestic paper industry throughout the second half of this year.
The pessimists say the price improvements are being driven by artificial factors and can’t be sustained.
A trader from one large export-oriented paper recycling firm says the price improvements are coming despite a decline in consumer spending, a drop in overall manufacturing, higher fuel prices (though fuel prices have been declining in June) and a Chinese market that may be sending out signals that it will be slowing its purchases of raw materials (including recovered fiber) as it cools down its economy.
He says the strength in the offshore market is being driven more by a favorable currency situation rather than by a general improvement in the global paper industry. Paper stock exporters have been benefitting from a fairly weak U.S. dollar, which has helped boost paper stock exports throughout the past year. If this situation changes and the U.S. dollar strengthens, he adds, exporters could see a quick drop in orders. This would result in the long-expected price correction.
The old newspapers (ONP) grade has been one of the biggest beneficiaries of the upswing in prices. With fewer newspapers being read, less ONP is available for recycling purposes. This trend is not expected to change any time soon.
Adding to the drop in ONP volumes, the price spread between ONP and mixed paper has narrowed enough that some paper stock dealers are opting to commingle the two grades, further reducing the supply of ONP. This scenario has kept the supply of ONP down while keeping prices for the grade, when it is available, fairly high.
Still another factor pointing toward the challenge for ONP consumers, a Midwestern paper stock dealer says, is that quality reportedly remains a major issue. No. 8 deinked news is practically non-existent because of quality problems, several sources note. Other ONP grades that are generated from single-stream processing centers are seeing quality levels drop below what has been traditionally packed, say some recyclers, who characterize the grade as a soft mixed paper.
The old corrugated containers (OCC) market also has been moving up in price during the past several months. The steady increases in prices, however, are eliciting concern from some dealers. One Southwestern paper stock dealer says domestic mills, after passing higher prices for their finished products earlier this year, are starting to get resistance to further price increases. Domestic mills have been buying steady amounts of OCC, though the overall sluggish economy has not resulted in surging production of most paperboard grades.