While domestic orders for many paper stock grades have picked up, generation of new supply continues to be an issue, leading to reports of spot shortages for some grades.
Index is based on 1982 averages prices as 100; Source: U.S. Bureau of Labor StatisticsGeneration is typically low during the first quarter of the year, and harsh weather has further reduced available supply. Because domestic mills have been running better production schedules, requiring more fiber, there has been a scramble for material.
In the past, the offshore market was the driving force behind the strength in bulk grades. However, recent trends, according to a number of paper stock dealers, point toward improved domestic buying as the key to keeping the market moving as spring approaches.
Bulk grades continue to be the standard bearers of the recovered fiber market, with mixed paper, especially hard mixed, displaying the strongest price and demand improvements. While mixed paper prices are strong throughout the country, a number of dealers say pricing for the grade in the Midwest has been exceptionally strong because Pratt Industries is purchasing as much of the material in the area as possible to feed its new mill in the South.
This improved mixed-paper market is creating a cascading effect, with some paper stock dealers opting to include news and even OCC (old corrugated containers) in their mixed paper packs in light of the narrow spread between the grades.
With more dealers opting not to source groundwood paper, the old newspapers (ONP) grade also has been moving up sharply. Deinking news has been in short supply throughout the country. While some ONP is being included with mixed paper, inclement weather in parts of the country from mid-January to mid-February has resulted in scarcity of the grade in the Northeast, the Midwest and even in the South. Several sources report prices for deinked news climbing by as much as $35 per ton in some regions of the country. Despite the improvement in pricing, the grade remains scarce. One dealer called the demand for deinked news a “feeding frenzy.”
The Midwest region is not alone in seeing strong demand for news, as other regions also are seeing heady prices for the material. A paper stock dealer in the East says that, in at least one instance, a paper mill in the region has been paying greater than market price to guarantee it has an adequate supply of material coming into the mill.
As of the middle of February, offshore buying of recovered fiber is somewhat muted. Several exporters claim that some buyers for Chinese mills have backed out of the market, hoping to see price declines. However, as these exporters note, these offshore buyers will have to re-enter the market if their inventory levels decline sufficiently. With generation of most bulk grades still low, the price could continue to ascend.
A paper stock dealer in the Midwest says that while Chinese consumers are still buying paper stock, orders to that country are not as strong inland as they have been in the recent past. He notes that a number of Chinese mill buyers are trying to buy material at pre-Chinese-New-Year prices but are finding resistance.
If these same mill buyers opt to start building their inventories, there could be a push for OCC, mixed paper and even ONP. This could drive prices for these grades higher.
Another paper stock dealer says that Mexican mills, which have been fairly quiet over the past several months, are more aggressively buying ONP from throughout the Southwest.
Several industry observers say that if recovered paper prices continue to climb, it might become more challenging for the paper mills to continue passing on these higher costs to their customers.
Deinking grades are posing an interesting situation. Commercial printers continue to close, reducing the generation of many deinking grades. Despite shortages of coated book, several dealers say they are opting to include this material with sorted office paper, further reducing the supply of coated book stock available to consumers.
Even the largest commercial printers are experiencing business problems. Chicago-based RR Donnelly, one of the largest commercial printers in the United States, has announced that it is closing its Colorado printing plant by April 1, 2011.