Near Future Paper Demand Looks Bleak

Slower industrial production, a decline in newspaper advertising and other factors are negatively affecting end markets for scrap paper, according to keynote panelists at the Paper Recycling Conference & Trade Show in Chicago.

“What a difference a year makes,” panelist moderator Bill Moore of Moore & Associates, Atlanta, said in regard to scrap paper markets in June 2001 versus pricing one year ago. “A year ago it was a pretty strong market—though it was starting to erode—but we found out it had a long way to go down further.”

Dave Stevens, general manager of the recycling division of Smurfit-Stone Container Corp., Chicago, noted that total U.S. consumption of old corrugated containers declined 6% in 2000 and that “the trend is continuing” in 2001.

A slump in overall industrial production has also curtailed orders for corrugated packaging, meaning OCC generation has also dropped off. The cardboard container industry has responded to the slump by shutting down 2.6 million annual tons of production, but Stevens estimates that “there’s still excess capacity of 1.365 million tons in addition to the 2.6 million that is now offline.”

The domestic overcapacity situation, according to Stevens, is “not good for the OCC business, [and] not good for the recycling business,” and at one point interrupted his presentation by asking the audience, “This is all gloom and doom, isn’t it?”

An increasing amount of OCC is making its way to China, where manufacturers are “using more containerboard to ship their finished products to the U.S.,” Stevens noted. The value of Chinese goods shipped to the U.S. nearly doubled in four years, rising from $52 billion in 1996 to $101 billion in 2000.

Regarding the near-term outlook for the OCC grade, Stevens said, “I don’t look for any spiked prices any time this year.”

The growth of curbside collection programs in the U.S. and other parts of the world has caused supply to swell beyond demand for some grades, said Rick Mason of Perry H. Koplik & Sons, New York. “There are really no market forces slowing the flow of supply, but demand is turned on and off by paper makers,” he remarked.

Mason called pricing “our industry’s judge and jury,” and noted that in the one year between Paper Recycling Conferences, OCC prices had fallen from $113 per ton to $38 while other grades such as mixed paper have also experienced sharp drops.

Like Stevens, Mason did not predict an immediate turnaround. “Most paper companies do not see a change in pricing until Spring 2002 at the earliest,” he remarked.

Jim Porter, president of Solvay Paperboard, Syracuse, N.Y., referred to himself as an optimist, although he acknowledged that “Mr. Greenspan’s soft landing is a little bumpy right now.”

Echoing Stevens to some extent, Porter noted that domestic box orders are down and an overcapacity of boxboard and box-making production existed. “The key is domestic balance; we’ve got to get our industry in balance within our shores,” he commented.

Despite the near-term pain, Porter said his optimism stemmed from the ability of recycled-content mills to gain cost advantages over virgin pulp mills and to gain the upper hand. “I don’t see any virgin pulp mills being built [in the U.S.] in the foreseeable future,” he remarked.

A market threat that all three panelists are aware of is the plastic industry’s attempt to gain container market share. “The industry’s very concerned about plastic packaging taking over from the corrugated case,” said Stevens, who added that plastic began making its inroads in the late 1990s when corrugated box prices were higher.