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Market Focus: Recovered paper

OCC export prices have been calmness personified for many months, having basically flat-lined around the mid-£80s per tonne since last summer.

But all that changed in February in a development that stunned even some of the sector’s most seasoned professionals. Values leapt some £10 per tonne to reach £96 at one point before settling back a pound or two at the time of writing.

“Prices have gone crazy high – I did not expect it at all,” said a major buyer for the Chinese market. Prices for the UK’s OCC are now said to be around £5 per tonne higher than those on mainland Europe, raising concerns in some quarters that buying allocations for this side of the Channel could be compromised.

Export sales of mixed paper have also witnessed price increases to beyond £60 per tonne, partly because “the UK is coming out of its wet season and so the Chinese want to buy UK mixed again”, claimed one expert.

A number of reasons have been ventured for the price spike. These include some mills needing to place orders after the Chinese New Year break, export deals with Indonesia, India and Vietnam at higher prices, and low freight rates. Spot rates down to $325 (£229) per 40ft container have been reported to MRW, although most shipping space has been booked in the $400-$500 bracket.

Shipping lines are talking about implementing rate increases of $100- $150 per container in mid-March, leading some recovered paper experts to suggest that freight costs have bottomed. Others believe, however, that significantly higher rates will struggle to gain traction, especially as relatively few problems are traditionally encountered in obtaining vessels or containers during April.

In common with OCC and mixed, there has also been an uptick in prices for the middle grades of recovered paper in recent weeks, fuelled to some extent by Chinese demand for sorted office waste, which has helped to drive this grade’s export price to £130-£135 per tonne. Multigrade has also witnessed price progression to £115-£120 per tonne for export sales and £111-£114 for domestic business – equivalent to gains of £3-£5 over the levels published in our late January report.

News & pams prices are unchanged at £80-plus per tonne for domestic sales and £75-plus for exports, although MRW was alerted to “some signs of tightness in the European market generally” and therefore to the possibility of values moving higher in the near term. For the high grades too, demand remains healthy for the limited volumes available.

With 2015 now confirmed as a year of record UK recovered paper exports, very low freight rates and generally stable fibre prices, how will it be remembered?

“A year of good demand and sustained prices – but not an easy year,” ventured a prominent industry figure. “There was so much competition in the market as people were perhaps trying to recover money they had lost in darker times. There was a lot of fighting for volume so margins were very squeezed across the board.”

View from the UK

A busy end to the trading year propelled UK recovered paper exports to a new peak in 2015. At 4.880 million tonnes, overseas shipments across the whole of last year beat the previous record of 4.847 million tonnes established in 2008 and eclipsed the 2014 total of 4.436 million tonnes by a clear 10%.

UK Paper figures

UK Paper figures

Substantial export gains were registered by all three categories of recovered paper. The mixed & mechanical total climbed 5.8% to 1.983 million tonnes after completing 2015 with four consecutive months of year-on-year gains, including a 31.9% hike in December itself.

Overseas deliveries of corrugated & kraft also soared around 31% in the final month of last year to 289,300 tonnes, to give a 2015 total of 2.717 million tonnes, an increase of 10.5% over the 2.458 million tonnes of the previous year. And having begun 2015 with three months of export decline, the high grades mounted a stunning recovery to end the year with overseas shipments 73.3% higher than the 103,802 tonnes of 2014 at 179,905 tonnes.

For December, UK exports of all forms of recovered paper motored to 466,232 tonnes for a year-on-year increase of 32%. This was the second highest monthly total of last year, bettered only by the 505,116 tonnes dispatched abroad in June.

As exports climbed, UK mills’ consumption of recovered paper headed unswervingly in the opposite direction. Usage registered a year-on-year drop of 3.2% in December, the smallest decline since January 2015, whereas the total for the year of 3.336 million tonnes was a resounding 10.2% lower than the 3.714 million tonnes of 2014.

In effect, mixed & mechanical undid the good work elsewhere as its usage in UK mills slumped 27.5% from 1.842 million tonnes in 2014 to 1.336 million tonnes the following year. By contrast, domestic mill consumption of corrugated & kraft advanced 7.5% from 1.377 million tonnes in 2014 to 1.480 million tonnes in 2015, including a leap of almost 40% in December to 130,813 tonnes.

The UK mill usage increase for the high grades was a more moderate 5%, from 495,161 tonnes in 2014 to 519,964 tonnes last year.

The full-year figures from the Confederation of Paper Industries and HM Revenue & Customs contain some massive percentage swings, but total UK collections of recovered paper remained virtually unchanged last year, dropping 0.5% to 7.977 million tonnes from 8.014 million tonnes in 2014, despite a 17.5% surge in volumes last December.

Collections of mixed & mechanical slid 12.4% last year to 3.170 million tonnes whereas corrugated & kraft racked up an increase of 9% to 4.150 million tonnes, a total bolstered by a 34.3% year-on-year gain in December. However, collections of the high grades made even smarter progress, climbing 11.8% last year to 657,064 tonnes.

UK RECOVERED PAPER KEY FIGURES: DECEMBER 2015

UK RECOVERED PAPER KEY FIGURES: DECEMBER 2015

While UK mills’ usage of recovered paper fell by just over 10% last year, their total paper and board production dropped 9.7% from 4.397 million tonnes in 2014 to just 3.970 million tonnes; as recently as 2007, the UK’s paper and board output had been 5.228 million tonnes.

Production of tissue and corrugated case materials actually increased in 2015 by, respectively, 0.5% to 772,005 tonnes and 9.5% to 1.452 million tonnes, but these gains were easily offset by the 31.8% nosedive in graphic paper production from 1.544 million tonnes in 2014 to 1.053 million tonnes.

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