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Market Focus: Recovered paper

OCC export prices recently advanced to the threshold of £100 per tonne before drawing back to £95-£96 at the time of writing.

The differential to mixed paper had stretched to almost £30 at one point in the first quarter, but this gap has since closed to nearer £20.

As regards domestic price levels, OCC is currently commanding around £90 per tonne whereas mixed paper is typically in the £60-£65 range.

This widening of the OCC/mixed price divide had been due in large part to the “recent reluctance of Chinese mills to buy from northern Europe during periods of sustained wet weather”, according to a leading industry figure.

Meanwhile, values for sorted office waste have been bolstered by Chinese imports for white top production, reaching £134-£139 per tonne for domestic and export deals, while a broad, regionally based range of £115- £123 is currently being quoted for multi-grade. The high grades market is said to be “stable to firm”, while news & pams is fetching around £80 per tonne in the UK and £80-£85 for export, with “pockets of shortage” reported for continental Europe.

In its latest results released in March, recovered fibre-consuming company Lee & Man Paper of China insisted it was “optimistic about the outlook of the paper industry”, despite ongoing order book pressures and slower growth not only of the Chinese economy but also of packaging paper consumption.

“Demand for packaging paper in China is expected to grow steadily in the long run,” it maintains. “In addition, the rapid development of online shopping has led to fundamental changes in consumption and logistics models, benefitting the packaging paper industry.”

Local government authorities will impose more stringent environmental monitoring policies which will shut down even more obsolete production capacities to further alleviate the supply/ demand situation, it adds.

Recovered paper

Recovered paper

So what will this mean for the country’s overseas suppliers of recovered fibre? According to leading industry analyst RISI, exports accounted for most of the growth in China’s recovered paper consumption increase of around 1.27 million tonnes last year because domestic collections were relatively stagnant after growing at an average of approaching 10% a year in the previous 12 years.

But while it asserts that China “will certainly continue to buy a huge amount of recovered paper overseas”, RISI goes on to forecast that the rebound in Chinese imports “will not last long” because the net import volume is predicted to decline gradually, together with the nation’s slowing recovered paper demand growth and improvement in its domestic collections.

But of more immediate concern to exporters is the news that China has cut back on its import licences by 20% for 2016 in a bid to stimulate demand for paper recovered domestically.

According to industry experts, there are already some indications of a related shift in buying patterns in the UK, but there is also a belief that China may backtrack on this move if supplies begin to run short.

One contact warned that, if followed “to the letter of the law”, the measure could potentially result in the loss of 650,000 tonnes of UK recovered paper exports to China when calculated on a pro rata basis. That said, the UK’s shipments to all overseas destinations combined were running at a record pace in the first two months of this year.

Meanwhile, shipping rates have increased to typically $500-$550 for a 40ft container after having bottomed at below $400. “A lot of traders relied on the very low rates and this has taken many of them out of the market,” MRW has been told.

View from the UK

The records continue to tumble for UK exports of recovered paper. After posting an all-time high of 4.880 million tonnes last year, shipments began 2016 at breakneck pace – with more being dispatched from these shores in February than in any previous month.

Indeed, the February total of 529,993 tonnes outstripped the previous high of 505,539 tonnes registered in January 2012 by a clear 5%, and exceeded the figure for the same month last year by a whopping 48.7%.

With shipments in January also high at 442,900 tonnes, this meant a combined total for the first two months of this year of 972,893 tonnes, an increase of 24.2% over the 783,102 tonnes recorded in January-February 2015, according to latest data from the Confederation of Paper Industries and HM Revenue & Customs.

Twelve months ago, MRW published a list of the eight occasions on which the UK’s monthly recovered paper exports had exceeded 400,000 tonnes, up to and including January 2015. Since then, this feat has been repeated no fewer than six times.

UK RECOVERED PAPER KEY FIGURES: FEBRUARY 2016

UK RECOVERED PAPER KEY FIGURES: FEBRUARY 2016

The high grades of recovered paper enjoyed the sharpest spike in export activity, with the February total of 25,240 tonnes representing a year-on-year surge of 140.1%. But the combined total for January and February of 47,146 tonnes reflected an even steeper increase over 2015 of 154.3%.

From the year-on-year perspective, UK exports of corrugated & kraft soared 50.8% in February to 310,484 tonnes and 27% across the January-February period to 569,118 tonnes, while the respective increases for mixed & mechanical were 38.9% (to 194,269 tonnes) and 12.7% (to 356,629 tonnes).

UK collections of recovered paper also made notable gains in February after falling 3.7% year-on-year in January. The total of 771,162 tonnes for the second month of this year represented an increase of almost 24% over February 2015, while the running total of 1.476 million tonnes exceeded the figure for the first two months of last year by approaching 9%.

Despite leaping 12.6% in February, collections of mixed & mechanical were actually 3.9% lower across the first two months of this year at 553,689 tonnes, whereas corrugated & kraft volumes were more than 16% ahead of last year’s January-February total at 791,889 tonnes.

UK collections of the high grades, meanwhile, jumped almost 46% year-on- year in February to 65,082 tonnes to give a cumulative tally of 130,337 tonnes, more than 34% higher than the 96,732 tonnes of January-February 2015.

Counterbalancing these gains in exports and collections was a sharp downturn in UK mills’ usage of recovered paper, with the overall total for January-February 2016 of 515,628 tonnes equating to a drop of 16.6% from the 618,303 tonnes of the corresponding period of last year.

The decline for mixed & mechanical was 29.4% to 204,281 tonnes, while corrugated & kraft and the high grades suffered falls of, respectively, 6.5% to 227,275 tonnes and 2.2% to 84,069 tonnes. Compared with January-February 2015, UK paper and board production was 9.2% lower in the first two months of 2016 at 633,597 tonnes.

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