Paper Commodity Report

The container shortage and rising gas prices have taken some of the shine off the recovered paper market. After several months of climbing prices, old corrugated containers (OCC) fell back some in price in the beginning of May.

"A little luster is off the recycling market," says one Midwestern recycler. Following OCC’s lead, mixed paper also fell back some, as did sorted office paper (SOP). ONP (old newspaper) has remained stable.

Sources lay some of the blame on the container shortage that has been plaguing the industry. Material usually bound for export markets has remained within North America because of the lack of containers, leading to something of a surplus of domestic material, says one recycler based in the Southwest, which is reflected in May’s lower prices.

Fuel prices are also continuing to take their toll on the recycled paper industry. One recycler reports that high diesel costs mean mills aren’t reaching as far for material as they once were. "Everyone wants to get material from his own backyard," he says. He reports trouble with some brokerage accounts, which are shying away from the traditional homes where they shipped their paper. "Now, all of the sudden, they’re not wanting to drive that far to get their material," the recycler says. "That’s causing problems, and it’s going to continue to cause problems." However, he adds, "you can’t always source from within 200 miles of your mill," so the rising cost of fuel can only limit material movement so much.

However, even with somewhat lackluster news this month, sources say, historically speaking, the market is still very strong overall. "There’s definitely a crimp in some things, and it’s not as great as it has been other months," says one recycler. "But scrap is still off the charts." He recalls pricing from the early part of the decade when OCC was trading at $35 per ton. "We’ve had good markets to work in the last couple of years, and I don’t think we’re sliding back down to that level," he says. "Markets are still pretty good overall, historically speaking."

Early May also brought severe devastation to the world’s biggest consumer of recovered fiber when a 7.9-magnitude earthquake struck China’s Sichuan province on Monday, May 12. In the immediate aftermath, the quake’s impact on China’s industry, particularly paper, seems minimal. Overall China’s economy suffered only a brief hiccup, with Asian markets rallying days after the event. While no paper mills seem to have been immediately affected, longer-term impact has yet to be seen. "They’re in turmoil, and that doesn’t bode well for export, it doesn’t bode well for the container situation," says a Southwestern recycler.

On the domestic front, eyes are on the acquisition of Weyerhaeuser’s containerboard packaging and recycling business by International Paper. IP will acquire Weyerhaeuser’s operations, including nine linerboard mills, 72 box plants in the U.S. and four in Mexico and more than 30 specialty packaging, kraft bag and recycling operations. The U.S. Department of Justice concluded its review of the transaction in early May, and completion of the deal is expected in the third quarter of 2008.