Paper Department

On a Tear

Paperstock markets have been on an impressive run. Moving into the spring, prices for the bellwether grade, old corrugated containers (OCC), have moved up significantly. Some paperstock dealers say they are expecting prices to top the $200-per-ton level.

Supply shortages continue to be one of the biggest challenges for many paper recyclers. Inclement weather through most parts of the United States in February has worked to reduce the overall supply of material. Now, with better weather on the horizon, supply is looking to catch up with demand.

Domestically, reports indicate that a number of paperboard mills have seen their OCC inventories decline significantly. With the overall supply of material constrained, some of these board mills have had to enter the market aggressively, paying higher prices to guarantee an adequate supply of material for inventory purposes. This has worked to further strengthen OCC prices.

Offshore, China continues to purchase significant amounts of OCC from coastal regions of the United States. The steady to strong purchases occur despite efforts by the Chinese government to cool down the Chinese economy by tightening the money supply.

The end of the Chinese New Year is playing a modest factor in the uptick in purchases from China, as paperboard mills in the country order larger amounts of OCC and mixed paper to replenish depleted inventory levels.

Many shipping lines are raising freight rates. These increases are adding to already rising paperstock prices.

Along with higher freight rates, container availability continues to be an issue for some recyclers, according to reports. With fewer containers available for shipments, some offshore buyers are more than willing to pay higher prices to ensure their shipments are made using the available containers.

While the sharp jump in pricing can be seen as a great opportunity for paperstock dealers, some say the increase will likely result in a sharp drop in future pricing. The question some of these more bearish paperstock dealers have is when the expected correction will take place.

Several dealers note many similarities to the mid-1990s, when OCC prices shot up practically overnight, only to drop precipitously a few months later.

A number of other paperstock grades are enjoying good movement and stronger prices, though less dramatic than those for OCC.

Several high grades are seeing better prices in light of a combination of limited supply and higher pulp prices. The amount of printing and writing paper used also has declined, leading to less recovered fiber available on the open market.

The tissue market, a significant buyer of many deinking and office grades, has been running at a fairly good clip, improving demand for deinking grades.

The relative strength in pulp prices also is contributing to gains in pulp substitutes and deinking grades. Additionally, the earthquake in Chile has resulted less pulp available on the market, contributing to tightness.

The old newspapers (ONP) market is seeing a bit of a bump in demand as well. Several reasons for the improvement include limited supplies of ONP in light of inclement weather throughout the country earlier this winter, especially in the Southeast. Also, a number of newsprint mills have been running with reduced inventories.

The supply of ONP also is constrained because of fewer newspapers in circulation. As has been well documented, newspaper circulation has been steadily declining in the last decade, with greater declines being reported during the past several years.

Highlighting the difficult situation for newsprint producers, recent figures from the Pulp and Paper Products Council, Montreal, note that newsprint consumption declined by more than 15 percent for January compared with figures the same time last year.

In the short term, the material shortage has given some recyclers optimism, as ONP has seen a modest price increase as a result.

(Additional information on secondary paper markets, including breaking news and consuming industry reports, is available at www.RecyclingToday.com.)