This month’s look at the recovered paper market
AN AUGUST of peaks and troughs ended with OCC export prices camped firmly above £100 per tonne. Prices began September at between £104 and £106 per tonne, although values as high as £110 were heard this week from some quarters. So what does this say about the leading consuming market of China?
Not so long ago, experts were issuing dire warnings about OCC price prospects for the autumn, given Chinese linerboard mills’ poor sales and high stocks of finished product at what was a traditionally busy time of the year. But according to one regional expert, a demand inversion appears to have taken place.
“China never had a high period [of demand] this year. Now the low season has come but it’s not as low as people thought it would be,” he explained. “Linerboard orders are coming in and prices are going up.”
Despite an improvement which has left many industry sages scratching their heads in puzzlement, nobody is promising an end to the ups and downs which characterised the OCC market during August. A leading exporter ascribed the high level of volatility to fragile confidence, resulting from fears of a double-dip recession, and to the absence of some major consuming countries from the marketplace because of Ramadan, including Indonesia.
Meanwhile, recovered paper collection volumes have remained so low that any significant upturn in demand could lead to an even more dramatic surge in prices, it is claimed. In recent weeks, export demand for recovered paper has been underpinned to a certain extent by a steady decline in freight costs in recent months.
“With increased shipping capacity coming on-stream, the lines have been looking more favourably at lowering their rates,” said one international trader.
On average, rates are understood to have been reduced by the equivalent of more than $15 per tonne during the past two months.
Domestic old KLS prices have continued within the £70-£80 per tonne band as mills claim to be holding relatively healthy stocks. Meanwhile, hard mixed is typically attracting £65-£70 per tonne compared with £58-£65 a month ago, whereas exported soft mixed has firmed from £75-£82 per tonne at the time of the previous recovered paper report to typically £83-£90.
Upward progress has also been reported among the de-inking and middle grades of recovered paper. Contracted volumes of news & pams are understood to be commanding £115-£120 per tonne on the home front and similar sums from export buyers. Domestic multi-grade prices have entered the £175-£185 per tonne bracket, whereas export values have stormed as high as £195 from upwards of £185 four weeks earlier.
India’s interest in UK middle grades has reportedly “gone off the boil” at these elevated price levels, with the result that continental consumers in, for example, Germany, France and Spain, have been left to mop up a large amount of the tonnage shipped from these shores.
As for the high grades of recovered paper, prices have remained firm during the past few weeks thanks in no small part to low generation levels.
Concern persists about the sustainability of high recovered paper prices when profitability is proving elusive for many consumers. For example, in recently announcing group results for the six months ending 30 June, Mondi chief executive David Hathorn highlighted the impact on the business of cost pressures. He pointed in particular to a 52% increase in the average benchmark price of recovered paper when compared with the second half of 2009.
A significant decline in the underlying operating profit of the group’s newsprint business was “mainly due to a disappointing performance at Aylesford Newsprint”, where reduced sales volumes and prices resulted in an operating loss.
“Sales price increases of around £20 per tonne are being implemented during the second half of the year, although this is not likely to lead to a significant improvement in profitability due to on-going input cost pressures,” said the results statement.
Mondi’s corrugated business bettered its underlying operating profit owing to the positive impact of its new recycled containerboard machine at Swiecie in Poland, as well as restructuring, cost reduction initiatives and improved product prices and volumes.
But although sales volumes increased, price increases achieved in the corrugated box plants were not sufficient to recover the increased paper input costs. “Further box price increases are anticipated in the second half of the year,” the group added.
In other news, Europe’s paper recyclers have been hailed as world- beaters in a report released by the European Recovered Paper Council (ERPC). This indicates that mills in the 27 member states, plus Norway and Switzerland, recycled 58 million tonnes of paper last year for an overall recycling rate of 72.2% - well ahead of the 66.7% recorded for 2008.
But ERPC is predicting that the recycling rate will slide below 70% in 2010. Secretary Jori Ringman said: “A swing in the opposite direction may occur when the economy recovers because recycling may not be able to immediately match up to the reviving paper consumption.” But the decline should prove to be temporary, he insisted.
HAVING POSTED year-on-year declines in April and May of this year, UK collections of recovered paper made a stronger finish to the second quarter. Totalling 670,471 tonnes for June, collection volume was 5.2% higher than the 637,556 tonnes recorded in the corresponding month of 2009.
Looking at the first half of the year, however, collections were down 2.9% from 4.098 million tonnes in 2009 to 3.981 million tonnes in 2010, according to latest statistics from the Confederation of Paper Industries (CPI) and HM Revenue & Customs.
Exports of recovered paper followed a similar pattern. Year-on-year falls in the first two months of the second quarter were offset to a limited extent by a 0.9% improvement in June to 346,374 tonnes. But, once again, the six-month comparison highlights a decline, of 5% on this occasion, to 2.144 million tonnes.
Further analysis of the export figures for June reveals substantial increases in shipments of Class I mixed papers (+6.4% to 78,933 tonnes), Class III newspapers & magazines (+37.5% to 100,006 tonnes) and the Class IV high grades (+45.4% to 11,093 tonnes) when set against the totals for the same month last year. In pure volume terms, however, these gains were almost completely offset by a 17.1% slump in exports of Class II corrugated & kraft from 188,565 tonnes to 156,342 tonnes.
UK exports of corrugated & kraft were significantly lower from the six-month perspective too, dropping 11.1% to 1.038 million tonnes.
Employing the same comparison, the UK’s overseas shipments of high grades fell 7% from 59,585 tonnes to 55,413 tonnes whereas mixed papers and newspapers & magazines registered increases of, respectively, 3.2% and 1% to give totals of 507,252 tonnes and 543,396 tonnes.
On the home front, mill usage of recovered paper experienced an uncommonly large increase of 10.8% in June to 333,345 tonnes. But it is worth noting that the comparison is drawn with the 300,798 tonnes of June 2009, the monthly usage low point for last year.
Corrugated & kraft returned the biggest gain, of 18.4% to 121,597 tonnes, closely followed by mixed papers, with a 17.3% leap to 25,333 tonnes. Consumption of newspapers & magazines improved almost 10% to 129,396 tonnes whereas high grades usage fell 2.9% to 57,019 tonnes.
After six months of the year, corrugated & kraft was the only recovered paper segment to be showing a decline in home mill consumption. The total of 665,288 tonnes was 2.5% below the 682,676 tonnes of January-June 2009.
Elsewhere, usage of high grades climbed 4.7% to 341,915 tonnes while the newspapers & magazines total of 738,677 tonnes represented an increase of 2.9%. A comparatively strong June performance meant that UK mill consumption of mixed papers ended the first half of 2010 some 1.6% higher at 152,206 tonnes.
UK mill intake of recovered paper achieved a 2010 high in June, bettering the total for the same month last year by 5% in reaching 339,539 tonnes. Corrugated & kraft jumped 18% to 126,024 tonnes, while the total of 26,597 tonnes for mixed papers represented an increase of 15.5% above the 23,034 tonnes of June 2009. In contrast, domestic intake of newspapers & magazines edged 0.7% lower to 129,797, while the decline for high grades was a more marked 9% to 57,121 tonnes.
The half-year comparison shows up intake gains across the board in 2010, as the following figures confirm: mixed papers 152,367 tonnes in January-June this year (+7.1% compared with the same period in 2009); corrugated & kraft 664,388 tonnes (+3.5%); newspapers & magazines 742,830 tonnes (+2.9%); and high grades 337,851 tonnes (+4.4%).
The half-way point in 2010 was reached with UK mill stocks of recovered paper standing at 89,515 tonnes, an increase of around 4.5% from the end-May total of 85,599 tonnes. But supply at the prevailing rate of usage remained unchanged at 1.2 weeks, the CPI stats reveal.
The Class I mixed papers inventory more than recovered its decline of the previous month to reach 4,734 tonnes, thereby pushing up supply from 0.7 to 0.8 weeks, whereas an increase in corrugated & kraft stocks of more than 3,000 tonnes to 45,419 tonnes failed
to prevent a decline in supply at the prevailing rate of usage from 1.7 to 1.6 weeks.
Despite a slight increase in the high grades stock total to 13,137 tonnes and a small fall in the newspapers & magazines inventory to 26,225 tonnes, supply of both was unaltered at, respectively, one week and 0.9 weeks.
The UK paper and board industry wrapped up a comparatively strong second quarter with a 7.5% year-on-year production increase in June to 370,017 tonnes, matching the percentage hike recorded in the previous month. As a result, domestic output in the first half of 2010 edged 0.8% above the January-June 2009 total to 2.155 million tonnes.
Newsprint was a significant factor in this improvement, given that production surged 10.6% from 534,360 tonnes in the first six months of last year to 591,243 tonnes this time round. In contrast, the printings & writings total slumped 20.2% from 274,802 tonnes to 219,349 tonnes.