Softer Markets Ahead (Maybe)

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

Paper stock markets continue to shine brightly through the end of the summer, though September may bring challenges.

A number of paper stock dealers report that China is pushing back against continued higher old corrugated container (OCC) prices. Several West Coast exporters say they expect prices to drop by at least $10 per ton for shipments to China in September. One exporter says that with the slowing of the U.S. economy, buyers on the behalf of Chinese mills may attempt to purchase OCC at lower prices.

Another factor that could affect recovered paper prices to China is the possibility that the growth of that country's economy is slowing.

Despite the efforts on the part of buyers for Chinese mills to push prices downward, the domestic market remains relatively strong when it comes to OCC and a number of other bulk grades. Movement through most regions of the country remains steady, though many domestic mills are indicating that they have full inventories and may look to hold prices for recovered fiber firmly at the present level.

The most recent figures from the American Forest & Paper Association (AF&PA), Washington, D.C., indicate that domestic mills are strong. The AF&PA reports domestic containerboard production increased by 4.6 percent in July 2011 compared with the previous month and increased 1.2 percent from July 2010's figure.

The July 2011 operating rate at domestic board mills, while down 0.6 percent from July 2010, improved 1.2 percent from June 2011. The improvement pushed the operating rate to 98.1 percent of capacity, according to the AF&PA.

While the operating rate news is positive, caution may be called for. A number of paper stock dealers say much of the summer production at mills, whether domestic or offshore, is picking up to meet end-of-year holiday demand. However, once activity for Christmas and holiday run schedules is complete, many of these same mills then ratchet down production.

On the bulk side of the recovered paper market, mixed paper and old newspapers (ONP) are demonstrating an interesting dynamic. Continued challenges in the newsprint market mean less ONP is being generated. Additionally, with the growth of single-stream collection and processing, the quality of baled ONP has declined, according to purchasing sources. Finally, several recyclers say the price spread between ONP and mixed paper has narrowed to as little as $10 per ton, which has led some recyclers to commingle mixed paper and ONP, selling the pack as a hybrid mixed paper and further reducing the supply of ONP. This has resulted in higher ONP prices at a time when many newsprint mills are struggling with softer orders.

When it comes to high-end recovered fiber grades, prices for pulp and pulp substitutes have been feeling downward pressure. The growing uncertainty about the overall economy is casting a pall over the market. Signs also are pointing to China lessening its pulp and pulp substitute purchases.

Paper stock prices have been helped by the fairly weak U.S. dollar, which has made export markets more lucrative.

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