Cardboard industry exporters are bracing themselves for significant price drops, which could lead to difficult conditions in the next few weeks.
Experts have warned that the unsustainably high prices could soon plummet due to changing trading conditions in the export market. Currently, the cardboard price is £105-110 per tonne.
According to Mark Lyndon Paper Enterprises (UK) commercial director Paul Briggs, the current price is so high as a result of Germany buying up large amounts of material. He explained that three new mills with a total on-stream capacity of 1.5 million tonnes of cardboard have opened within the last eight months. This has meant the mills have been buying up huge amounts of material for production and to build up their inventory. In contrast, China, which is usually one of the UKs biggest export markets, is in the middle of its low season and with high inventories they cannot pay the current inflated prices.
Briggs believes that if Germany had not come into the market cardboard prices would be around the £70 per tonne mark. He said: With the current low demand from China it is only the northern European mills that are holding up the price. In a few weeks time, higher inventories in northern Europe could lead to less demand from these regions and there is a possibility of price decreases.
China is currently feeding its machines with local OCC so does not need to pay the overprice material from Europe, the domestic Chinese price is around £70 but its starting to fall.
He also highlighted concerns that a newly strong Chinese domestic market means they will need even less material from overseas.
Additionally, freight rates have risen recently, as firms are taking containers out of commission due to the fall in freights coming to the UK. This has meant further squeezing of margins for Chinese merchants.
Shanks materials director Paul Dumpleton said: The Chinese buyers cannot afford the European price at the moment. I think there is going to be a bumpy road ahead. Im not worrying too much as if they do go down they will eventually come back up again. I have no idea how much prices will fall. It all depends on the Asian order books, as if theyre strong values will have a soft landing and if theyre weak the market will crash.
A spokesperson for Severnside Recycling commented: Prices are currently at unsustainable levels and have been influenced by unpredictable factors such as the Chilean earthquake and Finnish dock strike, both of which have affected the pulp supply.
Our prediction is that as these exports recommence and Germany pulls out of the sector there will be a market correction, reverting back to the rates seen earlier in the year. Furthermore, China won't be driven to pay the higher prices and will re-enter the market when they return to a more sustainable level.