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Market Focus: Recovered paper April 2014

Despite resistance from the recovered paper community, shipping lines were ultimately able to force through the freight increases of, typically, $200-300 (£120-180) per 40-foot container foreshadowed in our previous report.

At least the problems surrounding container availability - said to be of “crisis” proportions several weeks ago - appear to have eased over the ensuing weeks, although several contacts still described the situation as “certainly not fluid”.

The freight hike has played a part in the steep reduction in OCC export prices from upwards of £90 per tonne in early March (and even £100-plus in January) to between £72 and £78 at the time of writing. And industry experts were also quick to point to the downward pressure on price applied by “lukewarm” Chinese demand for fibre. “China is not hungry,” one told MRW. “Its linerboard mills are chock-a-block with OCC and with finished product.” Another said that if any of these producers had to top up their fibre inventories, “they are tending to go more for domestic material”.

A leading buyer of recovered fibre for the Chinese market said that shipping lines had not been prepared to budge on the new, far higher rates - although he ventured to add “for now, at least”.  He pointed out that the lines may have secured substantial increases but that their revenues were being compromised by the fact “they are not getting many bookings either”, not least because of the reduced Chinese demand. While his company had been attempting to look after its regular UK suppliers as far as possible, its overall purchases in the UK for March and April were as much as 40% down on January and February levels.

Some UK mills have grasped the opportunity provided by falling OCC prices and by increased availability to buy up additional volumes, perhaps with an eye to building a buffer ahead of the Easter holiday break. For now, this extra business is alleviating some of the pressure on domestic OCC prices which are typically around £70-£75 per tonne at the time of writing - although some sellers claimed this week to be obtaining more than the export average. China’s lack of appetite for fibre has also dragged down mixed paper export prices to £55-£58 per tonne, with domestic values being broadly similar.

While feedback from China confirms an overall improvement in the quality of UK fibre since the inception of Green Fence controls, there is clearly concern among suppliers over the potential for moisture claims in the coming weeks as recovered paper accumulated during the extremely wet period in the UK earlier this year begins to arrive at its various destinations.

In other price developments, news & pams has remained at around £85-£90 per tonne for both home and overseas business whereas decent demand from major buyers in India has provided support for the middle grades of recovered fibre despite higher freight rates, with multigrade said to be attracting £117-£125 per tonne in both the domestic and export arenas. The high grades market, meanwhile, continues to witness firm pricing as the limited volumes available find ready outlets.

In detail

There was a statistically dramatic start to 2014 with the most significant spike in UK recovered paper exports for some two years.

Overseas shipments totalled 440,625 tonnes in the opening month of this year to exceed the January 2013 figure of 383,396 tonnes by a weighty 14.9%, according to the Confederation of Paper Industries and HM Revenue & Customs. This tally, the highest since the 505,539 tonnes dispatched from the UK in January 2012, owed much to a 46.1% surge in overseas deliveries of mixed papers from 93,949 tonnes in the first month of 2013 to 137,223 tonnes. Using the same comparison, UK exports of corrugated & kraft also enjoyed a significant year-on-year increase of 11.8% to 244,333 tonnes.

But the export picture was not entirely positive given that overseas shipments of both newspapers & magazines and of the high grades were substantially lower than in the initial month of 2013: the former recorded a fall of 15.1% to 49,995 tonnes while the latter plummeted 24.2% to 9,074 tonnes.

January 2014 was also outstanding in terms of UK recovered fibre collections as the total of 734,021 tonnes was the highest for any month since the 737,109 tonnes amassed in April 2013. Once again, however, year-on-year increases of 50.2% for mixed papers (to 162,443 tonnes) and of 3.5% for corrugated & kraft (to 357,747 tonnes) were tempered by declines of 9.9% for newspapers & magazines to 169,891 tonnes and of 10.6% for the high grades to 43,940 tonnes.

Meanwhile, a substantial increase in mixed paper usage by UK mills (+62.9% year on year to 33,088 tonnes) failed to deliver an overall increase in domestic recovered fibre consumption. Compared to January 2013, usage of corrugated & kraft fell 10% to 116,032 tonnes while decreases of 7.5% for newspapers & magazines and 12.6% for the high grades yielded respective consumption totals for this year’s opening month of 121,892 tonnes and 36,954 tonnes. Combining all of these figures, UK mill usage of recovered fibre slid 4.7% from 323,234 tonnes in January 2013 to 307,966 tonnes in the corresponding month of this year.

Conversely, domestic recovered paper intake climbed 1.6% overall in January 2014 to 330,962 tonnes on the back of year-on-year increases of 56% for mixed papers and 4.7% for newspapers & magazines. Intake of corrugated & kraft and of the high grades recorded declines of, respectively, 5% and 16.1% when compared to the first month of last year.

These latest figures confirm that the most significant mover in UK mill stock terms was newspapers & magazines, with a gain of more than 8,000 tonnes in January to 47,669 tonnes extending supply from 1.3 to 1.7 weeks at the prevailing rate of usage. Stocks of corrugated & kraft edged lower to 65,262 tonnes such that supply dipped from 2.8 to 2.5 weeks. There was an inventory increase for mixed papers but supply was unchanged at 1.1 weeks while stocks of the high grades fell from 9,970 tonnes at the end of December to 8,889 tonnes by the close of January, thereby trimming supply from 1.2 to 1.1 weeks.

UK paper and board production made a negative start to 2014, with output dropping 3.6% from 388,597 tonnes in January 2013 to 374,610 tonnes a year later.

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