Lower freight costs could support a market improvement

Over recent months, demand in Europe has been very strong for all grades of paper for recycling. Stocks at yards have been really low, supply tight and production levels high.

Prices for deinking grades have been increasing with every new month - to levels never seen before, in some cases. OCC prices have remained relatively stable following the large increases during the first quarter, also to historically high levels in many instances. Packaging producers have been able to pass on the price increases in their finished products more easily than the newsprint and tissue sectors.

In addition to higher paper for recycling prices, all mills have had to face the huge problem of elevated gas prices. These higher gas costs could affect paper industry profits to an even greater extent than the price increases on paper for recycling. Some paper mills have already decided to reduce production and take downtime despite good order books.

My own country Spain has mirrored these trends, with healthy local demand and a scarcity of supply despite a lack of exports. Export prices are usually lower than what can be achieved in the local market and so recyclers are rather reluctant to ship overseas.

In Asia, COVID-related lockdowns in China have damaged the country’s economy and reduced demand for both recycled pulp and board products, creating a major impact across India and South East Asia. Many paper mills have been forced to take downtime because of the reduced demand, not only Chinese-owned companies but also regional players. As a result, paper for recycling demand has also been reduced and buyers have been implementing steep cuts in import prices despite opposition from exporters in Europe and the USA. Furthermore, additional duties are being imposed with pre-inspection in the country of origin for imports into Malaysia and Indonesia. Ocean freight costs appear to be the only positive at present as these have fallen in almost all instances.

The USA saw a balanced OCC market in June after eight consecutive months of dropping prices, with even slight increases in July. OCC demand is really good in the USA, increasing 4% during the first five months of this year when compared to 2021, which was already the highest consumption year on record at 24.32 million tons. The main reason for this domestic demand increase for OCC was the start-up of additional containerboard capacity and a 27-year high in corrugated box shipments following a 6% increase across 2020 and 2021 combined.