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Notes on Paper
The state of the recovered paper market.
May 1, 2010
3 Min Read
Bill Moore
All grades of recovered paper have enjoyed a rapid increase in price in the first quarter of 2010, completing a full year of upward movement. Old corrugated containers (OCC), the bellwether grade that makes up almost half of the business, was up from a U.S. average price of $83/ton in the fourth quarter of 2009 to $138/ton in the first quarter of 2010. At the bottom of the market, OCC averaged $41/ton in the first quarter of 2009 — quite a run! Somewhat less dramatic price increases were also experienced by the other major paper grades — mixed paper (MP), old newspapers (ONP) and sorted office papers (SOP) — in the first quarter of 2010.
There were a variety of factors that rarely come together that caused the major market price movement:
The generation and supply of recovered paper had been down due to weak economic conditions and the severe weather in the eastern United States, curtailing collection programs.
Two U.S. paper industry factors pushed the recovered market: 1) the expiration of an energy-related tax credit affecting virgin fiber- based mills and 2) heavy rains in the southeastern United States that limited the ability of mills to obtain adequate supplies of wood, requiring them to run more recycled fiber. While the energy-related tax credit was a nice shot in the arm for the industry, some market distortions were attributable to it.
China's domestic economy moved forward at a good pace over the last six months. That and the uptick in the U.S. economy drove demand for boxes, which translates to the use of more OCC.
Finally, most U.S. mills ended 2009 with very low inventories of recovered paper, which set the stage for a major price increase when demand picked up.
The following is our outlook for the major grades of recovered paper for the balance of this year:
OCC: Expect a flat market going forward, maintaining the relatively high levels of first-quarter 2010. Mixed paper markets will be similarly flat, though levels may be somewhat higher than the first quarter of 2010.
ONP: With major reductions in capacity in North American newsprint, we expect ONP to be flat to slightly down for the balance of the year.
SOP: Over the next year, we expect SOP to enjoy the largest price increase, based on a continued decline in the use of printing and writing papers by businesses (which make up the supply available for recovery as SOP), a relatively strong tissue consuming market, and curtailments in virgin pulp production in Chile due to the recent earthquake.
The one thing we do not foresee is a major fall in recovered paper markets. Moore & Associates believes that the only way this could occur would be a major shift and downturn in the U.S. and world economies, which have been showing reasonable and continued growth. The use of recovered paper by China, the most important factor for market pricing, is expected to stay relatively strong throughout the year. Many Chinese paper mill projects that were delayed or cancelled during the late 2008/2009 economic downturn are now back on track, which bodes well for a continued increase in recovered paper demand.
Bill Moore is president of Moore & Associates in Atlanta.
Want to Know More?
Bill Moore will speak in further detail on this issue at the "Paper Recycling Markets: What's Next?" session at WasteExpo on Monday, May 3. The session, which is part of the Recycling Track, will run from 1:45 p.m. to 3 p.m.
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