Gaining Altitude

Index is based on 1982 averages prices as 100; Source: U.S. Bureau of Labor Statistics  |  Information unavailable for July 2010Paper stock markets are in a fairly strong position heading into fall. Prices for bulk grades have moved up in most regions of the country. Demand for most grades remains strong, with domestic and offshore buyers actively looking to lock in tons.

Several sources report that China aggressively purchased old corrugated containers (OCC) throughout most regions of the United States through the tail end of this summer. One Southeast paper stock dealer says Chinese buyers came on strong with the expectation that orders for their finished products would increase. “China went crazy. They expected demand [in October] to go up and wanted to build up inventory.”

The strength in OCC is stretching South to the Miami area, with one vendor noting that the grade is selling for approximately $188 per ton FAS (free alongside).

With such strong buying, little excess OCC is on the market currently. Many domestic mills are buying more tonnage now in anticipation of stronger demand.

Moving into the Midwest, signals are mixed. While the market for OCC remains healthy, one broker says that after strong buying from China, indications point to Chinese buyers stepping out of the market. As a result, OCC prices have declined.

One paper stock broker in the region says container availability is not a problem in many key Midwest locations. Despite the availability of an abundance of containers, he adds that freight rates from the Midwest have increased. However, he notes that freight rates in the coastal regions have dipped.

A challenge for many paper stock dealers in the Midwest is the lack of local end markets for OCC in light of the significant retrenchment in the domestic paper industry.

Mixed paper also is enjoying stronger markets, and prices for the material have been climbing throughout the past several months. Again, the export market has been one of the driving forces affecting the grade. However, some domestic mills have been stepping in and taking more mixed paper as part of their furnish. Several other paper stock dealers say more recyclers are blending mixed paper in with ONP (old newspapers) as a way to boost bale prices.

In the East, several dealers say mixed paper demand is good and offshore orders remain robust.

In the Midwest, another cyclical end market, insulators, have been more aggressive in buying bulk grades, such as mixed paper and ONP. While these consumers typically do not buy as much fiber as paper mills, orders from these operations seem to pick up in the fall.

One Southeast paper stock dealer says that ONP is somewhat “sloppy.” However, another vendor, who exports a significant amount of ONP, says offshore orders are strong.

Recent figures from the American Forest & Paper Association, note that total domestic consumption of recovered fiber in August increased by 14 percent to 2.71 million tons compared with the same time last year. Domestic consumption, however, is down 1 percent from the previous month. For the first eight months of 2010, domestic consumption of recovered fiber increased by 9 percent from figures for the same time in 2009.