The Correction Begins

Index is based on 1982 averages prices as 100; Source: U.S. Bureau of Labor Statistics

After months of concern about rapidly climbing recovered fiber prices, paper stock dealers are reporting that most grades have begun their long-expected corrections. As of mid-September, prices for some low grades had declined by $20 per ton, while deinking grades and office pack saw declines of $50 per ton.

Several exporters say they expect pricing for OCC (old corrugated containers), mixed paper and other bulk grades to decline further through the end of the year. Several sources predict that OCC pricing could drop by $50 or more per ton by the end of this year. Other sources say they see prices falling even more sharply, possibly by more than $75 by the end of 2011.

A key reason for the sharp decline in OCC is the decision on the part of Chinese mills to pull back on their purchases for September and possibly October. One large West Coast exporter says October likely will be a very weak month for the Chinese linerboard market, which is translating into reduced demand for OCC and mixed paper in the U.S. As a result, a drop of $20 to $30 per ton between September and October is expected.

"Everybody is expecting the softening," the exporter says. "We will see how low the price will go."

In the Northwest U.S., an exporter says buyers for Chinese mills remain in the market for OCC and other bulk grades, though they may be temporarily reducing their purchases. He says two large Chinese buyers, Nine Dragons and Lee & Man, are expressing increased interest in buying recovered fiber from U.S. sources in an effort to reduce their exposure to the European market. He speculates that the economic concerns spreading across Europe are resulting in the generation of less recovered fiber.

Several recyclers, however, are wondering whether the current price decrease will be part of an extended decline or just a short-term blip in the midst of a much longer bull market.

The coastal regions of the United States are not the only areas experiencing price corrections. The Midwest is seeing across-the-board softening for paper stock pricing. Adding to these challenges, a Chicago area broker says, are the economic concerns emanating from Europe. While Europe is a less significant player in paper stock markets than Asia, these problems still are casting a pall over the industry.

Sources throughout the United States also say many domestic paperboard mills are telling their suppliers their inventories are full and are reducing orders for October.

Along with OCC, old newspapers (ONP) and mixed paper are seeing downward price pressure. Newsprint mills, which continue to see erosion in demand for their finished product, are contending with far dirtier deinking news (No. 8) and over issue news (No. 9), according to sources.

Adding to challenges for mills requiring clean news, the price spread between regular ONP and mixed paper has narrowed to as little as $7 per ton in some regions. This narrowing spread is giving recyclers less incentive to sort old news from their mixed paper. As a result, mixed paper can have a greater amount of groundwood (newspaper) content, while ONP shipments can contain more mixed paper.

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