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Paper market price corrections after 'unsustainable' rises

The paper market has seen a significant fall in price with merchants saying it had become “overheated” in recent weeks.

The bulk paper grades of OCC and mixed papers took the brunt of the price drops. OCC is currently trading at below £100 per tonne, representing a £20-£30 drop on the previous week, which had stood at £120-£130 for domestic and export.

Mixed paper grades are expecting to fall to the low £80s, down from the high £90s, with further decreases for both grades expected.

One merchant told MRW that “prices were falling like a stone” and some of the big brokers were not currently buying or taking orders. Others felt that US material was being favoured by the Chinese over that from the UK.

Another said they had not received an export order from China for more than three weeks, with the Americans getting in first as they were more of a natural choice than Europe.

Other merchants in the sector agreed that prices have been corrected because they were “completely unsustainable” and “too high to start with”, adding that they expected the market to come down as fast it went up.

Simon Ellin, chief executive of the Recycling Association, told MRW that the sudden market fall was linked to a “basket of factors”, including Chinese mills currently not requiring as much fibre and favouring US-sourced material.

”I wouldn’t say it’s a crash – it’s more of an adjustment,” he said.

“China is sitting on significant levels of finished product which they are struggling to sell, the mills are not running flat out at the moment so they don’t require normal amounts of fibre.

“European fibre has become very expensive because shipping costs have gone through the roof. The market had overheated and we were up to probably the highest level for paper prices for maybe five or more years.

“The Chinese have used the opportunity to reset the market to take the heat out. This might force the hands of shippers to get the prices down: it’s a message to them.”

A further factor affecting prices is China’s National Sword campaign to tackle illegal imports. Ellin suggested that Chinese rigour when enforcing existing import standards could frighten off mixed paper suppliers.

“Undoubtedly there will be some cherry-picking from the Chinese – they will be picking the best quality material and the exporters are not going to risk sending material out that’s on the cusp,” he said.

He added that such market conditions benefit those who produced good quality material, and that should become a norm for the sector.

Merchants told MRW they were now looking to April to see what would happen, unlike some companies which they said had put “crazy prices” on to the market.

It is predicted that shipping rate increases of up to $500, with containers now costing $2,000 in some places, will taper off in April. The resulting downturn of container booking has meant that some ships have been carrying less than half their usual cargoes.

 

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