July and August are rarely the most exciting months in the recovered paper calendar, and this year is no exception.
Average OCC export prices have shed a pound or two since MRW’s previous report in mid-July, whereas most other grades have remained locked within their existing ranges.
In the UK, August is traditionally a quiet month for paper generation, but the reduced supply of OCC has been more than countered by lower demand from mills both domestically and overseas, notably in China and Indonesia. European mills are generally carrying adequate stocks, while less buoyant economic growth in China and a patchy export picture have conspired to undermine demand for Chinese containerboard.
A domestic expert said: “A lot of mills are pulling back on their fibre purchases. There is no confidence, either now or for the rest of this year. Mills’ product prices are still low and margins are hurting them.”
With business conditions so fragile and overcapacity in China so substantial, it seems counter-intuitive that producers should be bringing more new machines online. The latest, unveiled last month by Lee & Man Paper Manufacturing in Chongqing, has the capacity to produce 320,000 tonnes of containerboard a year.
As justification for doing so, this leading recovered fibre consumer can point to a net profit of approaching $120m (£72m) for the first half of 2014 and to a strategy founded on the long game.
Commenting on its results, chairman Raymond Lee described the longer-term prospects as “promising” given that demand for packaging papers in China “will keep on increasing, and more and more backward production capacities will close due to limited competitive power and tightened environmental protection regulations”.
When the economy picks up, he added, his business “hopes to continue expanding and developing in suitable regions”.
At the time of writing, OCC export prices are hovering around the £80 per tonne mark, while mixed paper has continued to attract £60-£63 for overseas shipment. Recent price consistency has been helped by relatively static freight rates of $850-$900 per 40ft container, with the odd spot deal is noted at even lower levels.
In the UK market, OCC has been fetching either side of £75 per tonne, while sales of mixed paper have been concluded at a pound or two below export levels in many instances.
For UK and export sales, news & pams values have continued to occupy the £80-£90 per tonne range, while multigrade has weakened marginally to between £123 and £130 in response to lower pulp prices and slightly reduced interest from Indian and UK mills.
Despite a dip in demand, prices of the high grades of recovered fibre have held relatively firm, possibly a reflection of buyers not wanting to compromise existing supply links at a time of low availability. Indeed, one industry expert commented this week: “For a lot of fibre grades, demand may be weaker but buyers are looking more to the medium- to long-term and are not reducing prices.”
The view from the UK
UK exports of recovered fibre leapt more than 20% in May and June to cement a positive first half to the year in volume terms.
For the January-June period, overseas shipments were 10% higher than in the same period last year at 2.308 million tonnes, helped by year-on-year increases of 27.8% to 390,265 tonnes in May and 20.3% to 360,491 tonnes in June, according to latest figures from the Confederation of Paper Industries and HM Revenue & Customs.
May and June were also standout months for UK collections of recovered fibre, with an 11.7% year-on-year increase in the former to 695,661 tonnes followed by a gain of 5% in the latter to 644,117 tonnes. As a result, the collection total for the first half of this year of 4.095 million tonnes represented a jump of 3.3% from the 3.964 million tonnes of the same period in 2013.
By contrast, declines in UK mill consumption of recovered fibre were an almost constant feature of this year’s first half, with June recording the sharpest drop of 11.4% to 294,222 tonnes against 332,146 tonnes in the same month last year. Comparing the two January-June periods, domestic mill usage was 4.4% lower this year at 1.861 million tonnes.
Mixed papers provided the exception in posting UK mill consumption growth for the first half of the year (up 35.1% to 202,251 tonnes). The totals for May and June were around the average for 2014 to date, but represented year-on-year increases of, respectively, 26.5% and 10.9%.
But the percentage gains were even higher for UK exports of mixed papers, with May yielding a year-on-year increase of 39.5% to 124,669 tonnes and June 55.8% to 129,622 tonnes.
Across the first half of 2014 as a whole, overseas shipments were a massive 44.9% higher at 728,128 tonnes versus 502,388 tonnes in the same period last year. This gain was almost identical to that for UK collections of mixed paper, which leapt 45.5% in the first half of this year to 887,352 tonnes. The volumes amassed in May (152,274 tonnes) and June (157,860 tonnes) were higher than for any month since January.
After three months of declines from a year-on-year viewpoint, UK collections of corrugated & kraft jumped 21.4% to 327,637 tonnes in May and 2% to 296,935 tonnes in June, to give a half-year total of 1.952 million tonnes, just 0.2% shy of the figure for January- June 2013.
For domestic mill consumption, however, year-on-year falls of around 12% in both May and June contributed to a drop of 9.6% from 776,166 tonnes in the first half of 2013 to 701,907 tonnes in the same period this year.
As with mixed papers, corrugated & kraft exports surged in both May and June by, respectively, 50.9% and 14.1% on a year-on-year basis, to yield a first half total some 6.1% higher than last year at 1.262 million tonnes.
In complete contrast, the latest statistical analysis of the newspapers & magazines market offers up a sea of red, with domestic consumption, collections and exports all declining in both May and June. After six months of 2014, UK mill usage was 7.1% lower than in the opening half of 2013 at 719,730 tonnes, collection volumes were down 11.7% at 964,952 tonnes and exports tumbled 24% to 255,347 tonnes.
For the high grades, too, UK collections and exports were lower year-on year for each of the months in the second quarter, including a 46.2% slump in June shipments to just 7,181 tonnes. For January-June as a whole, exports were down 11.2% on last year at 62,615 tonnes, while collections dipped 4.9% to 291,229 tonnes. UK mill consumption of the high grades fell 4.1% to 237,170 tonnes in the first half of this year, despite the June total of 42,341 tonnes bettering the figure for the same month last year by 2.6%.