The boom/bust landscape paper stock dealers have grown accustomed to operating in seems to be in an extended boom period. Over the past six months paper stock markets, in nearly every grade, have shown steady strong improvements. Prices are climbing, demand remains strong, export orders continue to filter in: business hasn’t been this good in a long time, according to most paper stock dealers.
The question some are now asking is whether the market is emulating the roller coaster market seen in the middle of last decade. During the 1994-1996 period, many paper stock grades posted prices that shattered the top historical price levels. With some grades climbing by more than 100% in a few months, few saw it coming when the markets collapsed. The decline in prices for many paper stock grades happened even faster than the climb, with grades such as OCC moving from more than $200 a ton at the mill to around $50 at the mill in only a few months.
A shakeout in the industry resulted, with many long-time paper stock dealers exiting the business. For companies who have remained, lessons were learned.
Paper stock markets now are showing some of the similar conditions seen last decade. Prices for many grades are moving up sharply; demand continues to be strong, with domestic and export orders helping keep supply tight.
Despite some similarities to the past, many vendors do not see the situation that happened several years ago re-evolving.
NO RE-RUNS, PLEASE
Many of the fundamentals that drove markets years ago are not playing as big an impact today. Demand remains healthy across the board, with better domestic running schedules, steady to strong exports, and steady price increases for finished products all helping smooth many of the rough patches seen earlier. Where several years ago some flash shortages caused partly by inclement weather drove some mills to spur panic buying, currently price and demand is being driven more by better run schedules. The improved landscape also is tied to one of the biggest motivators of all: a much healthier world economy. As politicians and economists are quick to point out, there is little in the way of any slowdown in the U.S. economy. Along with a steady domestic market, many Asian economies, which were hammered by economic problems several years ago, are starting to recover, leading to a stronger global economy. Basic economic figures point to an improvement in the overall market for virtually all grades. Figures from the American Forest & Paper Association, Washington (AF&PA), show that consumption of recovered fiber at domestic mills moved up 4% to more than 37 million tons last year. Adding to the improved scenario for recovered fiber has been the sharp decline in the inventory of recovered fiber on hand. The AF&PA also notes that the inventory level is down close to 17% for 1999 from 1998 figures. This decline indicates that more mills will be looking to move their recovered fiber closer to a just-in-time inventory model. While not always the easiest thing to do, reducing large supplies on hand works to make the buying of recovered fiber a steadier business.A Top Down Approach
There are a host of factors for the improved market for recovered fiber, but probably the most important is the sharply improved condition of the pulp market. Over the past several quarters world pulp prices have been moving up. Steady pulp prices first indicate that supply and demand is improving. The former glut of pulp on the world market, which negatively affected most paper and paper stock grades through the middle of last decade, worked to depress the pricing of many paper stock grades. However, steady price increases gave many pulp substitute grades a long-needed price boost. Consumers, looking to offset higher pulp prices, looked to grades such as hard whites, soft whites, etc. This in turn boosted pulp substitute prices, as well as de-inking grades such as sorted white ledger and other grades. According to published reports, a number of pulp producers are looking to push through additional price increases this spring. Reuters reports that Fletcher Challenge Paper, Auckland, N.Z., plans to increase its average pulp price by $50 per metric ton April 1. The increase, if it holds, would bring the average price to $680 per metric ton for northern bleached kraft paper, compared to prices of less than $500 per metric ton a year ago. The plan to increase pulp prices follows a similar announcement by Weyerhaeuser Paper, Tacoma, Wash., to raise its pulp prices this spring. A second benefit to better prices was the ability for some stand-alone de-inking facilities to increase their run schedules. This area was one of the hardest hit during the 1990s. After being built with the expectations that market commodity prices would be enough to make these facilities profitable, a sharp drop in de-inked pulp (which follows the overall market pulp price parabola), forced some of these mills to either greatly scale back their operations or to close altogether. Now, with steadier prices, more of these mills, which were built to handle the widely diverse office pack grade, are running much better schedules. In one instance, the de-inking mill in Auburn, Maine, slated to be a large consumer of office grades, had seen its run time decline to close to one week a month. However, with improved market conditions, the mill is running much closer to full capacity. This is helping soak up much more recovered fiber. The hottest grades over the past several quarters are the office grades—sorted white ledger, office pack, coated book stock, etc. A number of factors are working to strengthen this collection of grades, most importantly demand from domestic and overseas buyers. Tissue mills, one of the biggest buyers of many of these grades, continue to buy in larger increments. Due to this significant buying, prices for some of these grades has moved up far past recent highs. Sorted white ledger has moved past the $300 a ton level at many mills; coated book stock and office pack are close to the $200 a ton level, if not higher for mill buyers. Adding to the better purchases by many tissue mills has been the increased run time of a number of de-inked pulp operations. Many of these facilities either closed or scaled back their operating schedules due to difficult market conditions several years ago. However, over the past year pulp prices have been increasing. This upswing is working to strengthen prices for de-inked pulp, allowing many of these mills to become profitable. As long as pulp prices remain on a higher plane, many de-inked pulp operations will strengthen and improve their operations. One concern that is being raised is that with prices for some grades climbing, smaller, stand-alone de-inking plants could find the price of the secondary raw material too expensive and opt out of the market all together. Increased pulp prices are not the only reason for better scrap paper prices. Prices for a number of finished products have seen increases. Producers of linerboard, corrugated medium, boxboard and printing and writing paper, among others, have announced plans to hike prices. A number of newsprint producers also are looking to increase their finished product prices, although there is some uncertainty over whether an increase in this sector will hold. Other factors for the sharply improved prices include a tightening of supply, as reports filter in that many of the waste management companies are looking to scale back their collection of many paper stock grades. Lower grades such as old corrugated and old news also are seeing better market conditions. The OCC market is seeing some very stable market conditions with modest price improvements occurring over the first part of the year. Even more promising is the fact that a number of new machines will be coming on line to add to the overall demand for the grade. A new operation by Republic Paperboard in Oklahoma is one such operation that will increase the demand for OCC. A new operation in China also has been pulling a tremendous amount of fiber off the West Coast. As that machine starts to run at full capacity, there could be a steady movement of fiber from the United States to feed the mill. Other mills which will likely have an impact on OCC prices over the next several years include the Solvay Paperboard mill in upstate New York, where plans call for another paper machine to be added; Weyerhaeuser’s decision to put equipment in place will sharply increase its demand for OCC; and a number of other mills that also plan to increase their overall intake of fiber. On the export side, China is becoming more active in the market for many bulk grades. According to a number of sources, a Chinese mill complex will have a new paper machine operational later this year. To feed the machine, the mill will be requiring more than 40,000 tons of recovered fiber a month, with some vendors saying the amount needed could go much higher than that. While China is expected to play a more prominent role this year, other areas continue to grow in visibility. The Mexican market has been one of the biggest drivers for an improved market in the Southwest. As the Mexican paper industry continues to mature, this area is likely to see continued increases in the volume and types of recovered fiber needed. Reflecting the overall upbeat attitude for the kraft paper market has been the announcement by a number of paperboard mills to hike their finished product prices. This move indicates that strength in the grades will likely help keep the production strong, with movement of recovered fiber at a good clip. While demand for the raw material is growing, there continues to be an opinion that the recovery level of OCC is not matching that growth. The apparent reduction in the amount of OCC and other bulk grades being collected by waste management firms means the overall supply of these fibers could be tight for the foreseeable future. Although markets for most paper stock grades are strong, there is some caution being sprinkled amidst the euphoria. Because recovered fiber is a commodity, it is not totally elastic. Prices reach a point where it becomes unprofitable to consume. When that happens, prices could drop sharply. Another area that bears watching is the overall health of the U.S. economy. Although inflation presently seems to be dormant, if the Federal Reserve pushes through a number of rate hikes, there could be a decline in demand for finished paper products, resulting in declines in the need for the raw material. In the meantime, it appears paper stock dealers will enjoy the markets as long as they last. RTThe author is a Recycling Today senior editor and the editor of the FibreMarketNews.com website.
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