Pulp Fact

Bill Moore President, Moore & Associates Atlanta

Approximately 55 Million tons of paper were recycled in 2007, a recovery rate of 55 percent. This met the stated recovery goal of the paper industry a full five years ahead of schedule, prompting the American Forest & Paper Association to set a new recovery goal of 60 percent by 2012. Meanwhile, prices for recovered paper, which had seen a significant downturn in 2005 and 2006, rallied to record highs in 2007. Prices for some grades have since come down a bit in mid 2008, but the overall market remains strong.

Old Corrugated Containers

Old Corrugated Containers (OCC) experienced a peak in the first quarter of 2008, and then tailed off beginning in the second quarter. It's likely that OCC prices will remain relatively stable for the balance of the year, though may see some downward pressure. Several factors contribute to this forecast: the continued downturn in the U.S. economy and over capacity in the containerboard sector in China, which will likely be a more modest buyer of OCC in the second half of the year than it was in the first quarter. Contrast this with the significant amount of capacity that China has coming online in the course of the next year. Nevertheless, expect lower utilization rates of China's newly installed and currently operating containerboard capacity.

Old Newsprint

Old Newsprint (ONP) was one of the stronger grades of recovered paper through the first half of 2008 and will probably remain so through the balance of the year. This grade continues to be “supply short,” with a steady downturn in the use of newsprint in the United States. For example, the Wall Street Journal, the second-largest U.S. newspaper, used 15 percent less newsprint in 2007. Many publications are cutting circulation, reducing page counts and even the physical size of pages, and promoting online alternatives to save paper costs and accommodate the drop in readership.

While North American demand is not robust, and even worldwide/Asian demand is modest, the reduction in supply has caused a noticeable uptick in pricing. The two big variables affecting a recovery in the use of newsprint in North America in the second half of 2008 are the U.S. presidential election and the use of newsprint around the world as part of the Beijing Olympics. So far, neither event seems to be making a profound dent in ONP prices, indicating a fundamental shift in how people are getting their news about these events, but the full effects may not be known until after the Olympics conclude and the general election gets into full swing.

Office Paper, Printer Grades and Pulp Substitutes

Similar to ONP, the markets for sorted office paper (SOP) and the other related office grades have been very tight because of a diminishing supply of printing and writing papers going into the U.S. system. In contrast to ONP, SOP demand in the Americas has been strong with a series of new tissue de-inking project startups launching in 2008 and anticipated in 2009. After a strong first quarter, SOP prices eased a bit in the second quarter. For the remainder of the year, prices for these grades will remain stable or increase slightly.

Similarly, the printer grade papers and pulp substitutes show classic signs of chronically being in short supply. Printing and converting scrap losses are down due to the economy, the declining use of printed materials in favor of electronic alternatives, and improved efficiencies in operations across the board. Prices for these grades will stay stable to slightly up for the balance of the year.

Mixed Paper

Mixed paper, as it has throughout history, will closely track what the OCC market does. The recovery rate of this grade has been increasing steadily, both from residential and commercial sources. The recovery rate of mixed paper currently is estimated in the high 30 percent range, up 10 percent since 2003. Mixed paper most likely will continue to track at 60 to 70 percent of the OCC price, a range it has inhabited for several years now.

Editor's note: For more analysis of reycling markets, see “A Global Appetite” on pg. 34.