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Market Focus: Recovered paper July 2015

Having climbed as high as £98 per tonne during recent weeks, OCC export prices have returned to sub-£90 territory at the time of writing, with many industry experts predicting further erosion as we head into the traditionally quieter month of August.

According to one leading buyer, the market has been overdue a correction given that price levels “have not been based on supply and demand”.

OCC export values have retreated to £88-£89 per tonne while mixed paper has seen a reduction to £76-£78 from the recent peak at around £80. On a ‘delivered China’ basis, UK prices are broadly on a par with those of mainland Europe. Meanwhile, freight rates slumped from approaching $1,000 (£640) per 40ft container in early June to nearer $725 barely a month later.

“There was a drop of more than $100 in the space of a single week,” one contact pointed out.

In the key Chinese market, the previously reported small upturn in fibre demand from linerboard mills has been largely neutralised by a sense of caution.

“Mills have been reducing their inventories,” MRW was told this week by a local expert. “The stock market in China is falling and that’s made everyone nervous. China is not confident at all, and when they are not confident, they back off.”

In the UK, meanwhile, OCC has been commanding around £86 per tonne and mixed paper typically £10-£12 less. UK mills appear to be generally wellstocked with OCC and there is “not a great deal of spot buying going on”. Despite general shortages of mixed paper, larger buyers “are not prepared to take risks with lower-specification material”, it was noted in the UK report to the latest BIR World Mirror.

It had been anticipated that Smurfit Kappa would return to full production with its new machine at Snodland, Kent, before the mid-point of the year and thereby crank up the pressure in the lower grades marketplace. But this development has been subject to delay.

A shortage of material has also characterised the market for middle grades, leading to prices higher than those noted in MRW’s recovered paper report in early June. Most notably, buyers have been prepared to pay as much as £140 per tonne for sorted office waste compared with £133-£135 six weeks earlier.

Domestically, multigrade prices have firmed to £129-£132 per tonne whereas “lukewarm” interest from India has been a major factor in export prices remaining relatively stable at £125- £127.

Less-than-abundant supply has also contributed to a recent price increase of £10 per tonne on best whites, for which demand remains strong. And an even steeper hike of £15 per tonne or more has been seen for news & pams as the market quickly re-stabilises following the loss of Aylesford Newsprint. Latest price indications are £85-£90 per tonne for export and £80-£85 for domestic sales.

So while there continues to be decent demand for most grades of recovered paper, collection volumes in the UK have become a source of concern for many (see table below).  

UK recovered paper collections in first five months of the year

View from the UK

In April this year, UK exports of recovered paper posted their highest monthly total since January 2014, as overseas shipments maintained a healthy pace across the early part of the year. Conversely, fibre collections and domestic mill consumption were substantially lower than last year, according to statistics from the Confederation of Paper Industries (CPI) and HM Revenue & Customs (HMRC) covering the January- May period.

Fibre exports followed up a year-onyear decline of 0.7% in March with jumps of 6.4% in April to 430,798 tonnes and of 2.3% in May to 399,215 tonnes, with the result that the five month running total was 2% higher than the 1.948 million tonnes of January- May 2014 at 1.986 million tonnes.

In contrast, UK mill usage of recovered fibre tumbled 9.7% from 1.571 million tonnes in January-May last year to 1.419 million tonnes in the corresponding period of 2015. Similarly, UK collection volumes fell 6.1% in the first five months of this year to 3.243 million tonnes from 3.455 million tonnes last time round, with year-on-year falls of 8.4% and 7.8% recorded for, respectively, April and May.

Looking in more detail at the individual grades, the biggest statistical swings have been reserved for the mixed and mechanical segment. Although exports were 5-6% lower in the opening quarter of 2015, overseas shipments leapt 33.2% in April and 14.8% in May to give a cumulative total for the year to date of 859,931 tonnes against 813,005 tonnes in the same period of 2014 – an increase of 5.8%.

Domestic collections of mixed and mechanical dropped almost 13% to 1.356 million tonnes in January-May 2015, while UK mill consumption plummeted 23.9% from 787,037 tonnes in the first five months of 2014 to 599,030 tonnes in the same period this year. May itself witnessed the sharpest year-on-year decline of 39.2%, from 165,658 tonnes to 100,660 tonnes.

The CPI and HMRC figures for corrugated & kraft tell a different story. Domestic mill usage had dropped in both January and February but then climbed in March, April and May to yield an overall increase of 2.3% to 602,467 tonnes. The pattern was almost exactly reversed for exports of corrugated & kraft, as year-on-year increases in February and March were countered by declines of 13.7% and 10.4% for, in turn, April and May. This trimmed the five-month total by 2% from 1.080 million tonnes in 2014 to 1.058 million tonnes this time round.  

And likewise for collections, gains in February and March were followed by a drop-off of 6.1% in both April and May, resulting in a 1.6% decline for the January- May period as a whole to 1.631 million tonnes.

The most consistently positive figures have been registered by the high grades, with usage, collections and exports all making year-on-year gains.

UK consumption jumped 7% in April and a further 15.2% in May to give a five-month total of 217,058 tonnes: equivalent to an 11.4% increase over the 194,829 tonnes of the corresponding period in 2014.

Helped by a 20.6% surge in May, collections of these grades climbed 6.1% to 256,627 tonnes in the January-May period from 241,850 tonnes in 2014. And exports recovered from declines in each of the first three months of this year to record 70+% increases in both April and May, resulting in a gain of 22.5% across the five months as a whole to 67,898 tonnes.

The factors outlined here help to explain why UK mill stocks of the high grades had slumped by the end of May this year to a fragile 0.6 weeks’ supply at the prevailing rate of usage.

Meanwhile, UK paper and board production was falling 7.7%, from 1.833 million tonnes in January-May 2014 to 1.692 million tonnes in the same period this year, largely as a consequence of graphics output (including newsprint) sliding 23.4% to 496,032 tonnes. The only positive was corrugated case materials with a production hike of 7.7% to 585,389 tonnes.   

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