Paper

The U.S. economy is making front-page headlines, and, as one recycler points out, that’s rarely a good thing. "It’s never good when business news is on the front page," he says. "Business news belongs in the business section—when it’s on the front page, it’s usually because it’s not good news."

On Oct. 8 the Federal Reserve and six other central banks from around the world slashed interest rates in an attempt to stabilize the world economy. This move followed weeks of worsening economic news and market volatility, including one of the steepest drops in the history of the U.S. stock market.

Recycling industry sources point out that the economic fallout from the U.S. credit and housing crises has started to take its toll on commodity markets. "Commodities have gone down, and paper has gone right along with them," according to one recycler based in the Southwest. Sources report big drops in price for bulk grades. OCC (old corrugated containers) dropped in price for the third month in a row, and news is down some $50 per ton. Sources report that in some cases, price isn’t the only problem. Many mills have full inventories and are not taking new material, period. "It’s not just a case of picking up the phone and selling material for less money," says one Midwestern recycler. "Nothing is scheduling." Mill production is down across the country, with major producers like International Paper shuttering considerable production capacity at its Valliant, Okla., mill and its Albany, Ore., mill. One source reports AbitibiBowater mills are using considerably less material as well.

Compounding the problem is a weakening export market. Sources report weak orders coming in from Asia for low-end bulk grades, such as news and OCC. "It’s indicative of what is going on in the overall global economy," says the Southwestern recycler. "Even mills in China now are facing financial situations and are not able to order as much." He says while demand from China will probably not dry up completely, it will likely decrease for the near future.

On the supply side, the market is entering what is typically a period of increased generation as the holidays approach. However, current economic conditions leave many unanswered questions as to what the next few months will bring. "It’s going to be interesting with the supply of OCC and news," says the Southwestern recycler. "You’re getting into the higher generation months, and this year, the generation will still be higher, but the question will be, will it be at the same level as previous years? With retailers selling less and manufacturing down, there are less products being produced and sold, so that’s going to be interesting," he says.

"It’s going to be a bleak Christmas for retailers," agrees a Midwestern recycler. "A lot of boxes aren’t going to get made."

While unwelcome, the downturn in the recycled paper market was anticipated by many, sources say. "It’s inevitable, although no one likes it," says the Southwestern recycler. "It’s not all doom and gloom—for the veterans of the industry, you know it’s going to happen."

Those who have been in the industry a long time expect to weather business ups and downs, though the current conditions could be something of a shock to anyone new to the business after such a long period of sustained high pricing. "It’s not as robust as it was," says the Southwestern recycler. "But you know the times are going to change."