OCC Continues to Run

The lazy days of summer don’t appear to be in the cards for old corrugated containers. Demand for the grade remains strong throughout the country, with handlers of the grade reporting more domestic mills aggressively pursuing additional tonnage.

With Chinese buying continuing to pull substantial tonnage off the coasts, many domestic paperboard mills are scrambling to ensure enough tonnage is being inventoried.

There have been several reports of some mills scrambling just to keep enough supply on their floor to run the machines. Problems for some mills mounted during Memorial Day holiday. Now, with the long weekend with the July 4^th holidays less than one month away, even greater amounts of buying is taking place. Prices for OCC continue to shoot upwards, with many offshore orders going for well in excess of $110-$120 a ton.

While prices have been moving up sharply, there also have been some mid-month price adjustments, reflecting continued strength in many of these grades. At the same time, the upbeat mood for many packers seems to be very bullish over the long term.

No one can say with certainty how long this most recent run will last. However, many packers feel that the strength in the grade could last from three months through the early part of next year.

What is causing this optimism?

One of the key issues is the collection arm. Over the past several years, as markets for most paper stock grades stagnated, the number of paper recycling operations declined. At the same time, many vendors opted not to pursue additional tonnage if it didn’t make economical sense. Now, with prices climbing, many of these same paper stock operations are not chasing after many of these additional tons, creating a tighter supply/demand condition.

Another factor that is playing into a more upbeat long-term market for many paper stock dealers is the growth in the Chinese market. Over the last several years this sector has moved from an occasional buyer to a major consumer. Looking forward, with the tremendous amount of new investment being scheduled in the country, demand for OCC from the United States will continue to grow. This will help keep a much stronger floor on prices.

Another benefit, at least in the short term, has been the ability of many board mills to reduce capacity. The combination of temporary downtime and permanent closing looks to be allowing mills to return to running healthier schedules. This is leading to increased demand for raw material to feed these machines.

The strength in OCC is strengthening the mixed paper market. A host of board mills have been aggressively buying more of this grade to use as a blending agent. Prices have reflected this trend, resulting in some sharply higher prices for the grade.

Building products companies also have been buying more hard mixed paper for their finished products. Prices aren’t nearly as high as OCC, although levels are much higher than they were in late March.

One grade that hasn’t shown as much strength as hoped is old news. While there is some substitution of this grade taking place, the continued problem with the newsprint industry continues to hamper any sharp strengthening in the grade.

The price for ONP, both No. 6 regular news and No. 8 deinked news, have shown some tepid improvements in many regions of the country.

Reflecting the tough situation for the newsprint industry, despite a decline in new generation of ONP there hasn’t been a strong run for the grade.

However, some optimisms are holding out hope that if OCC continues to strengthen through the rest of the summer and into the fall greater substitution for ONP will take place, forcing the grade upward.