An Upward Move

Index is based on 1982 averages prices as 100;
Source: U.S. Bureau of Labor StatisticsPaperstock markets seem to be in the proverbial “sweet spot” as of mid-August. While generation is still low compared with several years ago, price, demand and movement all seem to signal optimism heading into the fall.

Most paperstock dealers contacted for this report say they feel that even with potential price dips ahead for some grades, movement and demand for most grades of recovered fiber should hold up.

The bellwether grade, old corrugated containers (OCC), continues to display strength on the domestic and offshore markets as of late, benefitting from the pickup in orders related to the winter holidays.

The influence of these end-of-the-year orders may be coming to an end, however. A buyer for a large paper mill in the South says the push for the holidays will likely start trailing off by the end of September.

Although he says this big push may decline, he also says his mills are “sold out” for the next several months. This may be true of other paper makers, as well, as many say they have an optimistic outlook.

Operating rates for domestic board mills are nearing 100 percent. For July, the operating rate stood at 98 percent of capacity, according to figures from the American Forest & Paper Association (AF&PA), Washington, D.C.

A further positive indicator for the paperboard industry is the ability of paperboard companies to push through multiple price increases this year.

While domestic mills have been in a fairly good position as of late, it comes after dozens of box plants throughout North America closed, several paper companies filed for bankruptcy protection and prices for the finished product have slumped. One paper company executive estimates that 75 to 100 box plants have been taken off the market throughout the past several years because of the overcapacity situation.

Another paperstock dealer concurs that as a result of so much capacity being removed from the market, supply and demand in North America have remained in balance. Boxboard production has grown, with production climbing 4.8 percent in July 2010 compared with July of 2009, according to monthly figures from the AF&PA. For the first seven months of 2010, AF&PA reports that boxboard production increased 4.2 percent compared with the first seven months of 2009.

Containerboard production also continues to strengthen through this year, with July posting the highest level since August 2008. For the first seven months of 2010, containerboard production increased by 9.8 percent compared with the same time last year.

The situation is similar in the Midwest. A paperstock dealer says domestic markets continue to buy steady amounts of recovered fiber. However, the dealer calls the current market “weird.” He adds, “Markets at the present time are much stronger than I would have thought.” While many dealers say they believe the market will trend upward in the near term, the paperstock dealer says he is not letting inventories get too high.

AF&PA figures document the growth in paperstock markets. Domestic paperstock use for July increased by 9 percent compared with July 2010. And domestic consumption for the first seven months of 2010 is up 8 percent from the corresponding period in 2009.

The boost in markets is not limited to the corrugated sector. Despite the negative outlook for the newsprint industry, the old newspaper (ONP) market has held up fairly well through the summer. The reason, one recycler says, is that there is just not that much ONP available. With newspapers becoming smaller and circulation declining, any demand is being challenged by a minimal supply of recovered material.

On the East Coast, one exporter says ONP markets are very volatile, adding, “maybe more so than in recent years.” He also adds that the composition of bales of ONP has changed quite significantly from 10 years ago, including more white paper, envelopes and other non-newsprint grades today.

The exporter also says that with some newsprint producers selling their finished paper at a per-ton loss, it is inevitable that more newsprint capacity will need to be removed from the market before the newsprint industry is able to run profitably.