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Market Focus: Recovered paper July 2014

The stridency of the debate surrounding moisture levels has been taken up a notch by Mark Lyndon Paper Enterprises (UK) (MLUK), the procurement division of China’s Lee & Man Paper.

At the start of July, the company sent out a letter to almost 200 of its recovered fibre suppliers setting maxi­mums for moisture content which, if exceeded, said would result in cancellation of the load; thresholds for claims are also outlined in the communication.

“During the drier loading months of May-September we will allow moisture levels of 16%,” it stated. “Between 16-18%, we believe it is fair to make a claim for additional moisture before loading. Results averaging over 18% will result in the loads being cancelled.”

During the wetter months of October to April, it continues, “we believe it is fair to make a claim for additional moisture between 16-20% before loading”. Any results averaging more than 20% will again mean cancellation of the load.

Applicable with immediate effect to OCC and mixed paper, testing will be conducted by MLUK’s quality inspectors. The company points out that most moisture claims operate to the recognised international standard of allowing for a maximum of 12% moisture.

It describes its move as a response to the “unprecedented rise in the quantity of moisture being recorded in UK mat­erial”. While the company wanted to be as fair as possible, he said, “something needs to happen on moisture”, confirming to MRW that “our average during the winter was 25% moisture”.

The Recycling Association has expressed “considerable sympathy” with Chinese mills while underlining that the UK weather “can vary” and that the supplier-buyer relationship “must be seen as long term and not based on the experience of a couple of months”. At the same time, suppliers “must understand that mills do not want to buy water and that an appropriate price adjustment must therefore be agreed”.

It was also suggested to MRW that there is a need for a scientific, uniform sampling procedure that “everyone can agree to”. Other contacts wondered whether such moisture strictures would continue to be applied once mills’ fibre demands increased.

At present, OCC exports are garnering £81-£85 per tonne, with the recent small increase attributed in part to more interest in UK material from smaller mills in China. But concerns about moisture are blamed in part for only “lukewarm” Asian demand for UK mixed paper, with export prices similar to domestic values at £58-£63 per tonne. Meanwhile, domestic OCC prices are said to be several pounds below export levels.

At the Bureau of International Re­-cycling’s convention held in Miami last month, Ranjit Baxi of Wanstead-based J&H Sales International emphasised that Europe was experiencing slower growth in its fibre exports to China than many competing regions of the world (table 1 above).

And in the opening quarter of 2014, European shipments to China were markedly lower than in the same period last year, despite an overall increase in Chinese recovered fibre imports (table 2). Although Baxi indicated that quality considerations could be partly responsible for these developments, he also highlighted other potential factors such as the shorter shipping routes from some supplier countries.

Meanwhile, shipping freight rates from the UK to Asia have edged slightly lower to, typically, $900-$1,000 (£520-£580) per 40ft container. “There are some decent spot deals to be had,” MRW was informed this week.

Elsewhere in the market, the middle and higher grades of recovered paper have witnessed significant upward price progress, with multigrade now commanding £124-£130 per tonne for domestic and export sales on the back of scant availability, low mill stocks and decent buying interest. Home and export prices for news & pams have remained within the £80-£90 per tonne bracket quoted in our previous report, despite further downward pressure.

The view from the UK

In stark contrast to the 13.3% year-on-year leap in March, UK recovered paper exports were almost 4% lower in April when compared with the same month in 2013. Yet the total of 404,696 tonnes was the second-largest monthly volume shipped from these shores since April last year, exceeded only by the 440,625 tonnes of January 2014.

Cumulative figures from the Confederation of Paper Industries and HM Revenue & Customs reveal that UK exports amounted to 1.558 million tonnes in January-April this year for an increase of 4.3% over the corresponding period in 2013. 

Comparing April 2014 with 2013, UK collections and domestic usage of recovered fibre suffered similar declines: the former fell 4.6% to 703,062 tonnes and the latter slid 4.7% to 311,891 tonnes. UK mill consumption was also 2.6% lower in January-April at a shade under 1.25 million tonnes, whereas collections were 1% higher across the opening four months of the current year at 2.755 million tonnes versus 2.728 million tonnes last year.

Drilling down into the different grades, it emerges that the UK’s export performance would have been even more significantly improved but for tumbling shipments of newspapers & magazines.

The total in April was 28.6% below that for the same month last year, while the January-April figure of 178,668 tonnes trailed last year’s 236,052 tonnes by 24.3%. At home, too, a year-on-year consumption increase of 3.3% in April failed to overturn a usage drop-off of 4.1% to 486,209 tonnes for the first four months of the year as a whole.

In terms of UK mill consumption, corrugated & kraft and the high grades also made an indifferent start to 2014. The former’s usage slumped almost 15% year-on-year in April to 113,044 tonnes, while consumption across the first four months of 2014 was down 8.3% at 473,861 tonnes. For the latter, there were year-on-year usage declines in each of the first four months of 2014, including 5.4% in April, to give a cumulative total some 6.8% lower than at the same stage last year of 155,089 tonnes.

Also for corrugated & kraft, UK mill stock coverage at the prevailing rate of usage had retreated to 2.1 weeks by the end of April, after having closed out the previous month at an abnormally extended 2.6 weeks. UK exports of the same grade fell 8.6% in April to give a running total of 860,727 tonnes (-2.6% compared with January-April 2013).

Overseas shipments of the high grades followed decent year-on-year gains in February and March with a substantial 14%-plus decline in April for a cumulative total of 44,467 tonnes (+3.4%).

As has often happened in the recent past, the statistical fireworks were provided by mixed papers, with domestic consumption jumping 10% in April to yield a four-month total of 134,451 tonnes, an increase of 45.7% over the same period last year. Export figures were similarly dramatic, with year-on-year leaps of 28.8% for April and 43.6% for the January-April period.

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