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Market Focus Recovered paper

Sterling’s decline from perhaps artifi­cially high pre-Brexit levels has trans­formed the recovered paper markets since the referendum on 23 June.

Although described as “very hungry” for fibre, the initial response from some of the major Chinese mill groups had been to try to peg OCC prices close to the £95-£96 per tonne levels noted in MRW’s previous report.

Ultimately, however, overseas buyers had to hand back their exchange rate gains by paying significantly higher prices – a reflection in part of the fact that “there is just not enough material around”, said many experts. The uncer­tainty created by the Brexit vote is likely further to impair generation as the pub­lic becomes even more reluctant in its purchasing activity, one added.

At the time of writing, the highest OCC export price since the referendum has been £112 per tonne, with £109- £110 said to be the bracket in which most deals have been concluded. Mixed paper, meanwhile, has been commanding £90- £94 per tonne as against the £80-plus quoted in our early June report.

“The exchange rate has certainly made it easier to export and all of us have got more of a margin to play with,” a leading exporter confirmed to MRW.

As for those UK mills in need of acquiring spot tonnage but receiving no benefit from the pound’s weakness on the exchanges, they have been forced to increase what they pay for OCC and mixed paper, although none as yet is understood to have matched in full the aforementioned export levels.

The combination of exchange rate and fibre availability issues has also affected other grades of recovered paper. Lack of generation was identified this week as “the real driver” behind in-creases in news & pams values. “It’s a case of name your price,” said one UK exporter who had sold into Europe at approaching £110 per tonne. The domestic market is put at £100-£105 a tonne.

As for the middle grades, sterling’s weakness has energised buyers in Europe, India and China. Multigrade has been attracting £130-£135 per tonne in the export channel and £127- £130 at home, while sorted office waste has been fetching £137-£138 domesti­cally and as much as £140 overseas, buoyed by Chinese demand for white top production.

Best white prices reportedly surged £30 per tonne “overnight” once the ref­erendum’s impact on sterling became apparent. For the high grades, limited availability is continuing to play its part in underpinning price levels.

Figures revealed to the recent Bureau of International Recycling convention in Berlin by the association’s president Ranjit Baxi indicate that the UK was one of only four European countries to increase their recovered paper ship­ments to China in this year’s first quar­ter (see table).

He also told delegates to the paper division meeting that freight rates between China and Europe were “lower than I could have imagined possible”, but added that he was anticipating a correction. As regards shipments from the UK to Chinese main ports, freight rates have been relatively static in recent weeks at typically $500-$525 (£375- £393) per 40ft container.

View from the UK

Having set a record pace in the opening quarter of 2016, UK recovered paper exports went into reverse in April. Over­seas shipments for the month reached a total of 366,440 tonnes, the lowest since the 312,175 tonnes of August last year and the first time that the 400,000 tonnes barrier was not breached since November’s 394,543 tonnes.

However, UK exports of 1.769 million tonnes across the first four months of 2016 still eclipsed last year’s corre­sponding 1.587 million tonnes by 11.5%.

Figures from the Confederation of Paper Industries and HM Revenue & Customs also reveal that UK collection volumes took a backward step in April following year-on-year gains of 23.6% in February and 18.1% in March.

The monthly total of 602,051 tonnes was 7.1% down on April 2015 and was again the lowest since August 2015, when just 564,725 tonnes was collected. As with exports, however, the four-month cumulative total for 2016 of 2.784 million tonnes outstripped that for the same period last year, in this case by 7%.

Collections of both mixed & mechan­ical and the high grades actually increased in April: the former climbed 3.9% to reach 273,034 tonnes and post a running total for the year of 1.120 mil­lion tonnes (+3.6%), while the latter jumped 10.6% in April to give a year-to-date total that was 26.2% ahead of 2015 at 249,484 tonnes.

But corrugated & kraft collections followed up a 15.4% gain in Q1 2016 by tumbling 18.4% in April to 272,244 tonnes, yielding a four-month total that was 6.9% higher than last year at 1.415 million tonnes.

Exports followed a similar pattern for corrugated & kraft. Having soared 20.4% in Q1, April brought a year-on-year slump of 17.9% to 169,848 tonnes to give a year-to-date total that was 11.2% higher than last year at 958,702 tonnes. Mixed & mechanical exports slid 13.4% in April to 178,938 tonnes, but year-on-year gains of 38.9% in Feb­ruary and 26.7% in March ensured that the running total remained in positive territory (+7.8% at 728,693 tonnes).

The high grades, meanwhile, main­tained their series of export gains but growth has slowed dramatically month by month, from 173% in January and 140.1% in February to 28.9% in March and then just 2.9% in April (to 17,654 tonnes). The four-month total of 81,888 tonnes was still a mighty 67.3% ahead of the 48,957 tonnes dispatched abroad in January-April 2015.

In April, UK mills handed back all their recovered paper consumption gains of the previous month – and more besides. Having climbed 8.6% in March, usage fell 11.9% in April to 244,265 tonnes to give a running total of 1.041 million tonnes (-10% year on year).

Domestic consumption of corrugated & kraft had surged 19.4% in March but fell by the same percentage in April for a four-month figure of 466,402 tonnes (-4.1%). Similarly for the high grades, a 12.7% usage spurt in March was fol­lowed by a 9.4% retreat in the following month, leading to a 1.6% dip in the year-to-date total to 168,498 tonnes.

Mixed & mechanical, by contrast, witnessed year-on-year consumption losses in each of the first four months of 2016, including a 3.3% decline in April, to give a cumulative total of 405,637 tonnes (-18.6%).

Broadly in line with mills’ recovered paper usage, UK paper and board pro­duction slid 10.7% in the opening four months to 1.223 million tonnes.

 

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