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Market Focus: Recovered paper

Paper

There are clear signs of an easing in what one industry expert has described as “possibly the biggest shipping container crisis the UK has ever witnessed”.

But sea freight rates remain high at typically $1,200-$1,300 (c£1,000) per 40ft container, with some contacts reporting a peak of around $1,500 – which is more than three times the aver­age figure prevailing in the early weeks of 2016 (see table). For the short term at least, rates are widely expected to con­tinue at these elevated levels.

Late last year, the time lag between making a booking on a ship and the space becoming available was generally up to four weeks. But towards the mid­dle of January, this wait has fallen to around a week. Congestion at ports and in recovered paper yards has been reduced as a result.

But recent experiences in the freight market have embittered some recovered paper specialists. One accuses certain shippers of making last-minute demands for increases to previously agreed prices in a practice he described as “bordering on banditry” and one not conducive to a long-term relationship based on trust.

Having dropped below £110 late last year, OCC export values have re-bounded to £116-£118 per tonne while the range domestically is £108-£111.

Meanwhile, export values for mixed paper have climbed from £88-£90 per tonne to generally £92-£93, although there are isolated examples of signifi­cantly higher numbers having been achieved with buyers on mainland Europe. This is a sign, according to one expert, of concern among continental consumers about availability.

“This shows that good-quality mer­chant mixed has a market and can com­mand a definite premium,” he added.

Many experts believe there is scope for further price gains among the lower grades given the strength of demand from China, a weaker pound and the approach of the traditionally low-gen­eration month of February.

And even though major UK buyers have emerged from the Christmas period with stock levels generally higher than the seasonal norm, some are still understood to be buying spot material and expect to be busy throughout the first quarter.

Chinese mills’ hunger for recovered fibre is significant, their order files for linerboard are said to be healthy and product prices are improving.

The lower grade prices on offer from the UK are said to be “attractive” at typically $5 per tonne below the levels available from continental Europe, while US supplies are more expensive yet. Furthermore, a relatively dry winter has ensured that moisture issues with UK material have not been as promi­nent as in some previous years.

occ export price trend

occ export price trend

Prices for the middle grades of recov­ered paper have held steady in recent weeks, with multigrade still attracting £157-£160 per tonne in both the domestic and export domain. The firm­ness of the market is attributed to “lack of generation” and “global demand for white-top production”.

India has remained prominent in the market as it faces up to increasing competition from, most notably, China.

In early December, news & pams was commanding £100-£105 per tonne both at home and abroad. But exports to Europe are said to have “really softened” in recent weeks, with the price range for both domestic and export deliveries currently at £95-£100 per tonne.

View from the UK

Last October’s gargantuan exports of corrugated & kraft helped to propel UK overseas shipments of recovered fibre to their highest overall level for eight months, according to the latest statistics released by the Confederation of Paper Industries and HM Revenue & Cus­toms.

Combining the figures for all grades, UK fibre exports amounted to 479,515 tonnes in October last year for an increase of 21.4% over the 394,922 tonnes of the same month in 2015.

By leaping 52.8% year-on-year, exports of corrugated & kraft accounted for 286,724 tonnes of the total, and exceeded the October 2015 figure of 187,631 tonnes by just a little under 100,000 tonnes. By contrast, overseas shipments of mixed & mechanical and of ‘other grades’ fell, respectively, 6.8% to 177,395 tonnes and 8.9% to 15,397 tonnes.

After 10 months of last year, UK fibre exporters were back on track to beat the record they established in 2015, although the well-documented con­tainer availability issues of late 2016 may yet prove to have scuppered this achievement.

average freight rates

average freight rates

Some 4.103 million tonnes of recov­ered paper was dispatched to customers abroad in the most recent January-Oc­tober period, with the corresponding figure for 2015 2.1% lower at 4.020 mil­lion tonnes.

In October 2016, recovered paper collection volumes improved signifi­cantly to 696,944 tonnes, the first time the monthly total came remotely close to matching the 700,000-plus tonnes collected UK-wide in each of the first three months of 2016.

October saw collections of corrugated & kraft reach their highest level since February, with the total of 394,271 tonnes representing an increase of 21.3% over the same month in 2015. Mixed & mechanical volumes slid 15.9% to 243,826 tonnes while ‘other grades’ registered a gain of 1.2% to 58,847 tonnes.

From the 10-month standpoint, UK collections were 0.7% higher than in the previous year at 6.560 million tonnes. The running totals for mixed & mechanical and corrugated & kraft were both similar to those for January-October 2015: the former was just 0.3% lower year on year at 2.630 million tonnes whereas the latter showed an increase of 0.8% to 3.352 million tonnes. Collec­tions of the ‘other grades’ improved by 5.4% to 578,089 tonnes.

As for UK paper and board production, this fell 7.5% to 3.086 million tonnes during the first 10 months of 2016 compared with the same period a year ago. Corrugated case materials was the only product segment to avoid red figures by posting an improve­ment of 1.2%.

UK mill usage of recovered fibre was 8.2% lower than in January-October 2015 at 2.556 million tonnes, with mixed & mechanical suffering a drop of 11.5% to 987,886 tonnes while the totals for corrugated & kraft and the ‘other grades’ both retreated around 6% to, in turn, 1.154 million tonnes and 414,348 tonnes.

Examining October in isolation, domestic mill usage of recovered fibre slumped 20.9% year-on-year to 230,140 tonnes, its lowest month of 2016.

Consumption of mixed & mechanical plunged well below its previous year-to-date low of 96,137 tonnes recorded in May to just 74,286 tonnes in Octo-ber. Stocks at the prevailing rate of usage equated to 1.5 weeks at the end of October versus 0.6 weeks three months earlier.

Also in October, domestic consump­tion of corrugated & kraft tumbled almost 20% year-on-year to 112,256 tonnes, while UK mill usage of the ‘other grades’ was trimmed by 2.6% to 43,598 tonnes.

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