A DOWN NOTE
Good economic news was hard to come by in the last weeks of October and early November, particularly for commodity markets like recovered paper.
"It’s been a disaster," says one recycler based in California of the recent market activity. "Everything has turned upside down, and the changes came so fast, which has made it difficult to deal with."
"Back in the mid-’90s when prices got high, it took them several months to go down," recalls one recycler based in the Southwest. "Now, it’s not so much the fallen prices, it’s the speed with which everything dropped that took people by surprise," he adds.
Recyclers, packers and brokers across the country seem to be relaying the same story. Mills are stocked with inventory, prices have plummeted, and next to nobody is buying material.
High grades are still moving, but bulk grades are suffering, according to the Southwestern recycler. Lagging demand includes the formerly voracious export markets, which have been quiet lately. The California recycler reports small orders bound for a few export destinations, but none going to China.
Typically the weeks leading up to the winter holiday season bring a sizable influx of material—increases in generation of bulk grades like OCC (old corrugated containers) and ONP (old newspaper) in the range of 15 percent to 20 percent. In a climate already brimming with surplus supply, a glut of material would hardly be welcome. However, industry professionals are questioning whether the market will see the traditional seasonal increase in generation with slow economic conditions prevailing. The National Retail Federation (NRF) has released economic forecasts that predict the 2008 holiday season will represent the slowest growth since 2002, with sales rising only 2.2 percent. That increase falls well below the 10-year average of 4.4 percent sales growth.
"Current financial pressures and a lack of confidence in the economy will force shoppers to be very conservative with their holiday spending," according to NRF Chief Economist Rosalind Wells. "We expect consumers to be frugal this season and less willing to splurge on discretionary items."
A slow retail season could translate to fewer boxes and less packaging as well as to thinner newspapers light in usual advertising.
Economics has always played a key role in the viability of the recovered paper industry, and sources report those economics have changed drastically in recent weeks. In some of the grimmest stories, the price for recovered paper has fallen to the point where it becomes more economically feasible to landfill material, depending on a given region’s tipping fees, sources report. "The dynamics of the waste paper industry have really changed overnight because of the drastic change in price and demand," says the California recycler. "For example, a packer might have a container out at a generator’s yard. He might have been paying him $50 or $100 per ton for the material—now the packer is charging to pick up."
Similarly, some in the market say they wonder if recycling and "green" living will be able to maintain its recent popularity under a different economic structure. Businesses that were enthusiastic about "going green" a few months ago might reconsider their recycling programs if there is now a cost involved, says the Southwestern recycler. "It will be interesting to see if the overall consumers are going to understand the economics involved with recycling and that there’s an expense," he says.
However, even with all the negative news, sources who said they were waiting for the inevitable drop in the market months ago say the same logic that dictates "what goes up must come down" holds true for the reverse scenario. Opinions differ as to when a turnaround can be expected. "It’s going to be interesting to see how long this lasts," says the California recycler. "Some people are predicting that as early as the end of November some mills will come back to nibble. There are high inventory levels right now, and that’s going to have to be worked through. Some say November and December will be the worst, but that in early December you will see a little bit more buying, and a pretty dramatic upturn in price."
(Additional news on paper recycling markets, including pricing information, is available at www.RecyclingToday.com.)