Old corrugated containers have long been one of the most widely recovered and recycled of all grades of recovered paper. The OCC recovery rate has gradually climbed from about 40 percent of production 20 years ago to around 67 percent today. Where is OCC going from here? How much more can be recovered and what will happen to OCC prices?
According to econometric forecasting models developed by Thompson Avant International Inc., the OCC recovery rate will continue to increase for at least the next five years, reaching about 73 percent in 2002. It is possible recovery at this level will at least be approaching the theoretical practical maximum, although no one knows what that maximum rate will prove to be. But there must be a maximum at some level. As that level is approached, what will happen to OCC prices?
Recent Price Activity
OCC prices historically were predictably cyclic, at least through the 1980s. Prices rose and fell above and below a central trend average of about $45 per ton.
In the late 1980s, landfill tipping fees rose rapidly, and the paper industry was pressured from all quarters to increase its recycling rate. More recovered paper became available, and prices declined and remained low because of the enlarged supply. Also, as the 1990s began, the domestic paper industry entered a serious business recession. This combination of forces held prices down to a new central trend of about $35 per ton until late in 1994.
The 1995 spike in OCC prices was a short-lived anomaly caused by several factors in addition to the industry’s rapid recovery from the economic doldrums. A prime factor can be seen in the fact that the low price of OCC during the early 1990s stimulated capital projects based on this raw material, but did not correspondingly encourage new supply development.
Anyone who has been involved with recovered paper in almost any capacity knows of its volatile nature. Generally, TAII speaks of annual averages, knowing that occasional temporary ups and downs in price outside the ordinary price swings will occur on a month-by-month basis.
Price and Supply Outlook
TAII’s recovered paper price forecasts are based on supply and demand for recovered paper, recovery costs, disposal costs and the state of the general economy. The demand for finished paper goods is closely tied to the state of the economy. Disposal costs have leveled out in recent years and do not have as much influence on recovered paper prices as when they were climbing rapidly.
While some of the OCC-based projects started in the period from 1994 to 1996 have been curtailed or even shut down, many have continued operating. The result has been a new, higher central trend line of demand for OCC and a higher level of prices. TAII projects a new, higher level of normalcy for OCC prices.
OCC prices will continue to cycle up and down, in response to fluctuations in the economy, demand for finished containerboard, and even the seasonality of weather. But the cycles will take place within a higher range than in past years.
This projection assumes some degree of stability among the influential factors, but every supply and demand analyst knows that unexpected developments can be expected. For example, exports are always a factor in OCC demand. If the export market heats up and stays hot for a while, domestic OCC prices will rise. Passage of flow control legislation could affect supply, as could the emergence of some other type of environmental issue tied to recycling. It is not inconceivable that changing packaging methods could bring sharp increases or decreases in the demand for containerboard.
One method of avoiding price upsets or sharp swings may be the development of a futures market for all grades of recovered fiber. This is being attempted by some buyers and sellers, but is catching on very slowly, since few in the paper industry are used to thinking or buying in this manner.
For the foreseeable future, OCC prices will continue to rise and fall cyclically, but generally within a fairly predictable range – unless some unforeseen factor, perhaps on the order of another economic recession or an unparalleled period of prosperity, begins to pull the market down or push it up. – Susan L. Andersen.
The author is a senior consultant with Thompson Avant International Inc., an Atlanta-based consulting firm.
Company Location Product Production (tpy)
1994
Virginia Fibre Amherst, Va. Linerboard 115,000
McKinley Paper Prewitt, N.M. Linerboard 130,000
Solvay Paperboard Syracuse, N.Y. Liner/Medium 100,000
Visy Paper Conyers, Ga. Liner/Medium 240,000
Total 585,000
1995
Willamette Campti, La. Linerboard 275,000
Rand-Whitney Montville, Ct. Linerboard 174,000
Weyerhaeuser Plymouth, N.C. Linerboard 260,000
Liberty Paper Becker, Minn. Liner/Medium 90,000
Cedar River Paper Cedar Rapids, Iowa Corrugated Medium 270,000
St. Laurent Paperboard Thunder Bay, Ontario Corrugated Medium 110,000
Grupo Industrial Durango Durango, Mexico Linerboard 148,000
Stone Container Various Liner/Medium 50,000
Total 1,377,000
1996
Inland Container Orange, Tex. Linerboard 36,000
International Paper Mansfield, La. White Top 420,000
MacMillan Bloedel Henderson, Ky. Linerboard 140,000
Packaging Corp.
of America Counce, Tenn. Linerboard 114,000
Cedar River Paper Co. Cedar Rapids, Iowa Linerboard 324,000
Corrugated Services Forney, Tex. Corrugated Medium 216,000
Mead Stevenson, Ala. Corrugated Medium 227,000
Total 1,477,000
Latest from Recycling Today
- Nucor names new president
- DOE rare earths funding is open to recyclers
- Design for Recycling Resolution introduced
- PetStar PET recycling plant expands
- Iron Bull addresses scrap handling needs with custom hoppers
- REgroup, CP Group to build advanced MRF in Nova Scotia
- Oregon county expands options for hard-to-recycling items
- Flexible plastic packaging initiative launches in Canada
