Paper - Commodity Report

Good economic news has been sparse so far in 2008. However credit woes, a slow housing construction industry and talks of recession in the United States have done little to dampen the market for recovered paper so far. Prices have remained high in the face of strong demand across many grades.

From the high prices and consistent orders, it appears that a lagging U.S. economy isn’t enough to keep the paper market down, according to several recyclers. "We’re very busy," says one recycler based in the Southwest. "Markets are really strong."

All grades have been enjoying high prices lately, sources report, from bulk grades to high grades. Sorted office paper (SOP) has been commanding particularly high prices, one Midwestern recycler says. "SOP seems to be the real belle at the party," he says. "It’s had the most upward movement in the last couple months of any grade."

While recyclers are enjoying the fruits of the market, sustained high prices don’t come without some concerns, says a Texas-based recycler, who says many in the industry are asking how high prices can go and if mills can afford to continue paying such high prices.

Costs of doing business are rising across the board, from gas prices to operations costs and utility rates. With the price of recovered fiber hovering at such high levels, mills and paper producers are finding themselves with ever-decreasing margins. This is bad news for mills and manufacturers, which must decide whether to absorb the costs or pass them along to their consumers.

Export demand remains strong as well, even from China in spite of Chinese New Year and accompanying winter storms. China saw some of the worst weather it’s seen in a century in late January, according to published reports, with snow and frigid temperatures bringing transportation to a standstill in many regions. The inclement weather did not seem to depress the country’s demand for recovered paper, however, as buying remained steady and strong. "Demand hasn’t waned at all," says one recycler. "And it’s going to get stronger come summer because they’ve got several new mills coming up."

Stateside and abroad, the industry saw some activity on the merger and sales front. Cascades Inc. announced in February that the merger of the recycled box board operations of its European subsidiary Cascades SA and Reno De Medici S.p.A. has been approved by authorities in Germany and Italy. Combined, the two operations will have an annual capacity of 1.1 million metric tons, according to published reports.

In addition, Media General Inc., a one-third partner of Atlanta-based SP Newsprint Co., has agreed to sell its stake in SP to White Birch Paper Co. for nearly $350 million. The transaction is expected to be completed in the first four months of 2008. Once the deal is finalized, SP will be a subsidiary of White Birch Paper.

The sale includes the paper company’s two newsprint mills, one in Georgia, the other in Oregon, as well as SP Recycling, SP Newsprint’s recycling subsidiary.

White Birch is the second largest newsprint producer in North America and has an annual production of approximately 1.35 million metric tons.