My previous Mirror report began with much gloom and doom about how a slowing US economy and inflationary pressure were having an adverse effect on manufacturing orders and hence box production. The situation has since become much worse, with demand and pricing dropping significantly for bulk recovered paper grades.
Sellers of recovered fibre have such high inventories that they aren’t even requesting prices from buyers; rather, they are just saying: “Please take my tons.” One MRF operator told me recently that this is the worst situation he has seen in three decades. With most US mills - including International Paper and WestRock - taking downtime in September, and with possibly more downtime coming in October, it’s no wonder there is way more supply than demand.
Slowing demand at paper mills with high inventories is not simply a US issue but something that is occurring globally. As we all know, lower mill operating rates in Asia affect the USA directly owing to the vast amounts of recovered fibre shipped from these shores. So slow domestic demand in the USA combined with reduced export demand creates a real conundrum for recyclers who can’t export their recovered fibre as Asian mills are also taking significant downtime. Some of the mills in Asia that typically buy OCC from the USA are turning to cheaper supplies from Europe.
Contacts state that this dramatic downturn in demand will persist for quite some time. While fuel costs are dropping slightly in the USA, the US government has had little success to date with its attempts to slow inflation by continuing to raise interest rates.
At this point, all eyes are on US retailers to see if they will start building inventories for the upcoming holiday season. Retailer inventory strategy has always been the best barometer of corrugated box sales: if there is more demand for corrugated boxes, then demand for recovered fibre feedstock will bounce back. So far, however, no one is predicting that will happen.
This downturn seems likely to last for a while but the recovered paper market is always something of a roller-coaster ride and demand will be back. The question is not “if” but rather “when”.