Moving into the final quarter of 2011, pricing most paper stock grades is under significant downward pressure. Through the middle of October, prices for old corrugated containers (OCC), mixed paper, deinking grades and pulp substitutes were down $20 to $50 per ton, with further price declines expected during the next several months, according to sources.
One recycler says he will not be surprised if OCC prices descend to $100 per ton by early next year. OCC had been selling for more than $200 per ton only a few months ago.
Several paper stock dealers say such a correction was inevitable, as many recovered fiber grades had spiked earlier this year without the influence of a market improvement. Bulk grades, such as OCC and mixed paper, as well as deinking grades and office paper grades, had been the biggest gainers throughout the first half of 2011.
Many paper stock dealers say China is the primary driver behind the declining paper stock prices. Several exporters say long-time buyers for Chinese mills have been scaling back or halting their intake of OCC for the next few months because of a lack of available financing. Some exporters say this is the effect of the Chinese government's attempt to tighten credit markets, which is making it harder for businesses to obtain capital to buy raw materials.
One exporter says containers are backing up at
 Index is based on 1982 averages prices as 100; Source: U.S. Bureau of Labor Statistics. Information unavailable for Aug. 2011 |
Chinese ports, as custom agents institute stricter policies. This logjam is creating a cascading effect, as buyers of recovered fiber are cutting back on new orders. He speculates that this is being done to cool down markets.
A larger exporter with a presence in the U.S. and China says the Chinese government is trying to get the country's GDP (gross domestic product) down to 5 or 6 percent for 2011.
A West Coast exporter says that while markets have been challenging in October, "I think we could take a bigger hit in November."
Deinking and office grades are in an even worse position compared with OCC, according to another exporter. Mexico, which had been popular destination for deinking and office grades from the U.S., has sharply reduced its intake. Sources say Mexican mills have been buying more material from local sources, further reducing demand for these grades from the U.S. "Deinking grades are just brutal right now," he adds.
The problems with office and deinking grades extend beyond Mexico. Several sources say a number of U.S. mills also are cutting back on their orders in light of slackening demand for their finished products. One paper stock dealer says a Wisconsin tissue mill sent a note to its suppliers in October stating that it would be halting shipments from its non-contracted suppliers until November at the earliest.
The challenges affecting the printing and writing paper segment of the paper industry can be seen with Verso Paper, the second largest coated paper producer in the U.S. The Memphis, Tenn.-based company plans to permanently idle three of its paper machines, removing approximately 200,000 tons of finished product from the market.
(Additional information on secondary paper markets, including breaking news and consuming industry reports, is available at www.RecyclingToday.com.)