Business is strong. Demand is strong. Collections are okay, but I don’t think they are strong enough to cope with demand. I am not only talking about lower-to-medium grades, also the higher grades. Prices are still stable at eye level. What we mainly see is that domestic demand from Germany remains strong for all low grades. In two years’ time, Germany has become a net importer of recycled fibre instead of a net exporter. Fifteen years ago it was at 600,000 tonnes exports and now it is 600,000 tonnes of imports. It’s a [change] in stream in Europe of 1.2 million tonnes.
What you see in a general change in streams. Formerly, it was all marching a circle around major ports like Hamburg or Rotterdam. What you see now with the capacity that came online in the eastern part of Germany and in Poland, there was a very big surge of material from the eastern to middle part of Germany to those mills as well as Poland and the Czech Republic. That means the circle around the port is becoming smaller. That has to do with freight and also with pricing, because what I now hear is that even Dutch mills are almost [paying] at export price levels in order to get material in. That has not happened in recent years.
The larger councils collect recycled fibre, store it and offer it at a one-year or two-year contract. The company who takes the contract takes it out of the free market. On the lower grades, especially, you see that there is less free material around because as soon as we get the volume, we contract it with a mill. If anyone calls us about the volume, they can’t buy it because it is bought and sold. In general, the amount of tonnage that can move freely across the world is getting smaller. It is happening with low grades like mixed paper. It was something that was normal in Germany for the last two years and is now becoming more of a custom as well in other places. In Belgium it has been like that for ages.
I do think demand will stay very strong for the first half of the year. If you look at the order books of box makers, they look quite good. In February they increased prices again. But it seems the collection can hardly keep up with demand for recycled fibre. We have had nothing but increases since August. Prices are at all-time highs for exporting low grades and also for grades like hard white shavings.
Competition is strong. If you know your way around the market and you have quality and operate at a high level it is very well doable, but it is hard to keep the consistency going with competition. When competition is high, prices are high. The number of traders that move into the market increases. There is a tiny little detail that mills tend to call the summer stocks. And if you have problems getting your fibre today, how about producing in the summer period when collection is really tough?
I think some people are a bit worried, especially in newsprint right now. They are really in a tight situation as far as selling their finished product at current prices. Their raw materials are far too expensive, so there are bound to be problems somewhere for major newsprint makers. It is problematic. Usually when you are in a free economy market like we are, competition makes quality better because the guy with the best quality tends to get the best prices. But what you see in this current market with competition is mills, including export mills, tend to accept slightly lower quality levels to get the volume in. As soon as you give a certain merchant that freedom, then it will not necessarily mean that you get a better product. Maybe instead of a 90/10 OCC you will get an 85/15 for the same price. Or maybe some materials that are blended into that OCC are not really meant to be blended into that OCC. We have to keep an eye on quality at all times.
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H.D. Hitzert can be contacted at h.d.hitzert@reukema.com.