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Market Focus: Recovered paper October 2015

OCC export values have remained around the £85 per tonne quoted in our early September report, whereas mixed paper prices have softened a little to £65-£70 for overseas business and either side of £55 on the domestic front.

There has been some renewed downward pressure of late, particularly on mixed paper prices following news that the domestic market in China has dropped by some $12 (£7.80) per tonne in recent days.

Having spent a large part of the year above continental levels, OCC prices in the UK are now broadly in line with those on mainland Europe. These price developments have been accompanied by freight costs “bumping along the bottom”. Rates as low as $450 per 40ft container have been heard, although most deals appear to have fallen recently within the $525-$550 bracket. The proposal for a general rate increase in November has been greeted with a degree of scepticism within the trade.

For producers in China, the containerboard market is described as “very poor” by a local expert, who adds: “Margins are squeezed and finished product inventories are rising.”

There is evidence even at this relatively early stage of the fourth quarter that some Chinese mill buyers will decline to take any more overseas material until the new year, a decision seemingly based on the cheaper prices available locally and their need to nurse cash flows.

For China’s smaller mills in particular, a couple of issues become acutely relevant to their buying strategies around this time of year. First, import licences run out in December, and some operations will tend to hold back on fibre import bookings in case new licences are delayed or refused. And second, loans in China are required to be paid back before the year end, thus focusing attention on cash flow.

Furthermore, a purchaser for a major Chinese mill group has indicated that UK allocations are likely to be lower in the coming months in anticipation of the increased moisture levels seen in previous years during Q4 and early first quarter.

“Moisture levels have been good in recent months and there have been very few refusals,” he acknowledged. However, he added that rainfall levels had been low during this period whereas the generally wetter autumn and winter months would provide the “acid test”.

Compared with the bulk grades, markets for the middle grades have turned down more sharply in recent weeks, with multigrade export values losing some £10 per tonne to occupy the £114-£120 per tonne range, largely because India “is not buying at all”, whereas the domestic price band is put at £118-£123.

The high grades and news & pams markets have also experienced some softening, with the latter now said to be attracting £75-£80 per tonne for domestic sales and £80-£85 for overseas business.

View from the UK

As reported recently in MRW, the Confederation of Paper Industries (CPI) has warned MPs that four mills and 13 paper-making machines will close this year, equating to “one million tonnes of production or 20% of total UK output” (see table). Latest CPI/HMRC figures indicate that UK production of paper was


The CPI is calling on the Government to take urgent action to mitigate the adverse effects of strong sterling and “very high” energy and carbon costs.

After two relatively bountiful months for recovered paper collections in the UK, incoming volumes slumped to just 559,678 tonnes in August, the lowest monthly total since the CPI adopted its current format for statistics at the start of 2006. Indeed, it represents only the third occasion during the intervening 10 years on which the monthly collection tally has dipped below 600,000 tonnes.

August also saw recovered paper exports and domestic usage take their biggest hammering of the year to date: overseas shipments fell 8.6% year-onyear to 312,175 tonnes while UK mill consumption tumbled 18.6% to just 262,985 tonnes.

Mills’ stocks actually increased during the course of the month, albeit by a mere 336 tonnes to 83,872 tonnes or 1.4 weeks’ supply at the prevailing rate of usage.

Despite the setback in August, UK exports of recovered paper were actually higher across the opening eight months of 2015, with 3.202 million tonnes dispatched for an increase of 6.1% over the 3.019 million tonnes of January-August 2014, according to the latest batch of figures published by CPI/HMRC.

But when making the same comparison, collections were 3.5% lower than in the first eight months of last year at 5.223 million tonnes, while mill consumption dropped 10.6% from 2.485 million tonnes to 2.221 million tonnes.

UK mill usage of mixed & mechanical suffered a particularly dramatic year-on- year fall of 36.6% in August to 102,786 tonnes from 162,052 tonnes in the corresponding month last year. This resulted in the year-to-date total sliding 25.5% to 909,847 tonnes from the 1.222 million tonnes consumed in January- August 2014.

Mixed & mechanical collection volumes suffered their sharpest decline to date for 2015, plummeting 20.5% to 236,160 tonnes from 296,962 tonnes in August last year, while the eight-month running total of 2.092 million tonnes reflected a drop of 14.4% from the 2.443 million tonnes of January-August 2014. Exports were broadly unchanged by comparison, falling 1.3% in August to 140,906 tonnes but rising for the year to date by 1.4% to 1.306 million tonnes.

In the wake of two big months for UK collections of corrugated & kraft, August broke this positive streak as volumes slid 13.4% year-on-year to 266,982 tonnes. But from the eightmonth perspective, the total of 2.698 million tonnes constituted an increase of 4.7% over the 2.576 million tonnes of January-August last year.

Similarly for UK exports of corrugated & kraft, increases of 15.3% in July and 81.5% in June were tempered in August by a year-on-year decline of 17.9% to 157,729 tonnes. Once again, though, the January-August total was ahead of that for last year’s corresponding period, climbing 7.5% to 1.779 million tonnes.

And to maintain the symmetry, domestic mills’ consumption of corrugated & kraft was 1.5% lower in August compared with last year but 2.4% higher from the January-August viewpoint at 960,655 tonnes.

The high grades of recovered paper bucked the generally negative outcome in August. Consumption maintained the constant year-on-year growth pattern established since the start of 2015, exceeding the August 2014 total by 2.7% to reach 44,329 tonnes and contributing to a year-to-date increase of 7.7% to 350,428 tonnes.

Collections racked up their fifth consecutive month of year-on-year gains by climbing 13.5% in August to 56,536 tonnes. But export growth has been the most eye-catching aspect of the high grades segment of late: in August and for the third month in a row, overseas deliveries were more than double those for last year’s corresponding month, up 100.6% to 13,540 tonnes. 


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