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Recovered paper - 13 July 2012

Brown grade prices have lurched further to the south in response to low levels of demand from the spectrum of domestic, continental and Chinese mills. All appear to be reasonably or even heavily stocked with recovered fibre while carrying largely unpromising order books.

At the time of writing, OCC is attracting £77-£81 per tonne on the export market compared with £82-£88 a month earlier, while domestic purchasers of old KLS are paying typically a shade less.

Few of the experts contacted this week were expecting these price levels to improve during the remainder of the month.

Mixed paper values have also lost significant ground in recent weeks, with export business conducted largely in the £60-£65 per tonne bracket “if you can get an order”, MRW was told.

China is said to be adopting an even more “aggressive” approach to assessing the quality of the mixed material arriving on its shores, with rumours of rejections of significant quantities. Back in the UK, mixed papers are said to be attracting prices either side of £60 per tonne.

While export prices of OCC and mixed have been dropping, there has been further upward momentum in sea freight rates to China, which are now at $1,500-$1,700 per 40ft container.

“The increases for July are a mixture of higher rates and surcharges,” one freight expert noted.

Shipping lines are threatening to impose even higher prices at a time when container availability is described as “uncertain”.

One recovered paper expert commented: “Shipping is the big issue for everybody. Space is difficult [to obtain] and we are getting premiums added mid-month.”

De-inking values have also headed lower this month. At the time of writing, domestic buyers are paying typically around £95 per tonne for news & pams, whereas export values are understood to be a pound or two higher on average.

Sorted office waste is continuing to enjoy slightly better demand than the other middle grades.

Meanwhile, some, but not all, contacts suggested this week that Indian interest in multigrade has increased a notch. A broad span of price indications have been given for this grade, with the £100-£110 per tonne range seemingly capturing most domestic and export business.

Despite reduced volumes for the high grades of recovered paper, prices have remained under pressure because of the continuing dearth of demand.

In other developments, as reported in MRW last week, DS Smith has completed the acquisition of the packaging division of SCA for around e1.6bn (£1.27bn). It claims the deal represents “a significant opportunity to achieve its stated strategic aim of becoming the leading supplier of recycled packaging for consumer goods in Europe”.

Plus points highlighted by DS Smith include “access to new geographical markets across continental Europe” and delivery of annualised pre-tax cost synergies from procurement and operational efficiencies of at least e75m a year, as well as cumulative capital expenditure and working capital benefits of at least e40m by the end of the third full financial year following completion.

SCA’s two kraftliner mills in Sweden are not included in the transaction “because they are well integrated with SCA’s forest products operations”, according to the Swedish group.

After a first quarter characterised by some violent month-on-month swings, UK exports and collections of recovered paper were relatively stable in April.

Compared with the same month last year, total exports dipped 3.7% to 331,201 tonnes while collection volumes edged 0.7% lower to 649,436 tonnes.

Extending the comparison to the first four months of the year, overseas shipments slipped 0.7% to 1.579 million tonnes whereas domestic collections were actually higher than in January-April 2011 - by the slenderest margin of 0.1% - to stand at 2.795 million tonnes, according to latest statistics published by the Confederation of Paper Industries (CPI) and HM Revenue & Customs.

Exports of Class I mixed papers were almost 19% higher in April, although the four-month total of 304,286 tonnes was 4.1% shy of the 317,271 tonnes of the same period last year.

Overseas shipments of Class III newspapers & magazines dropped 5.4% in April, yet the running total was still 7.1% ahead of that for January-April last year at 355,415 tonnes.

Exports of Class II corrugated & kraft and Class IV high grades fell 0.2% and 25.1%, respectively, when using the same four-month comparison.

Domestic collections of the high grades were also significantly lower year-on- year, with the January-April total of 215,741 tonnes representing a decline of 27.7% over the corresponding period in 2011.

Despite a 15.6% increase in April itself, collections of mixed papers were 3.2% lower in January-April this year at 363,323 tonnes, whereas corrugated & kraft and newspapers & magazines posted increases for the same four months of, respectively, 5.7% and 3%.

Having climbed 2% in March, UK mill consumption of recovered fibre made an even sharper year-on-year gain of 2.1% to 332,140 tonnes in April, for a four-month running total of just under 1.27 million tonnes. This is equivalent to an increase of 0.4% over the corresponding period last year.

But this gain was due entirely to corrugated & kraft, usage of which jumped 15.4% both in April and across the first four months of the year. By the same January-April comparison, consumption of mixed papers, newspapers & magazines and the high grades fell by, in turn, 7.8%, 2.2% and 20.9%.

The CPI statistics tell a similar story for UK mill intake of recovered paper, with corrugated & kraft alone in recording year-on-year increases: of 25.2% for April and of 22% for January-April.

The four-month intake totals for 2012 reveal declines of 5.1% for mixed papers, 8.2% for newspapers & magazines and 20.3% for the high grades. Intake for all grades was higher by 1.9% in April this year at 341,978 tonnes and by 0.3% for January-April at 1.283 million tonnes.

UK mill stocks of recovered paper returned to six-figure territory at the end of April after two months below the 100,000 tonnes mark. The 105,954-tonne total equated to 1.4 weeks’ supply at the prevailing rate of usage versus 1.3 weeks a month ago.

During the same period, stock coverage among the individual grades increased from 1.1 to 1.3 weeks for mixed papers, 0.8 to 1.2 weeks for corrugated & kraft and 1.3 to 1.4 weeks for the high grades. Supply of newspapers & magazines dropped from 1.8 to 1.6 weeks as the inventory was trimmed by more than 8,000 tonnes in April.

Year on year, UK paper and board production edged 0.1% lower in April and by the same proportion across the first four months of 2012.

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