As we entered 2023, many were hoping that the USA would turn the corner and see box demand start to rise again, thus spurring renewed recovered fibre demand. But no, not a chance.
In January, pricing for the major brown grades have been stagnant across most of the country, with even some slight drops on the west coast in the Los Angeles and San Francisco markets. As a result, bulk grade values are far less than half of what they were a year ago. Some who are active in the market say real prices may be 75-80% lower than in January last year for OCC, DLK, Mixed Paper and BBC.
So why is this occurring? More of the same of what I have been reporting for the past few months: low consumer confidence resulting in reduced purchasing at the retail end and thus high retail inventories. All of this has led to lower box requirements from manufacturers as retailers are extremely nervous about buying more inventory when their current stock levels are very high owing to a lukewarm (at best) holiday season. Hence, manufacturers are not demanding box shipments from containerboard and boxboard converting plants.
This slowdown led to paper mills taking some serious downtime in the fourth quarter of 2022; indeed, most if not all major containerboard and boxboard paper manufacturers took unprecedented levels of downtime in December. Since the US paper mills did not run at full capacity, high levels of stock are sitting in recovered paper yards and MRFs waiting to be pulped.
All of these factors have combined to create something of a perfect storm in which high supply of recovered fibre does not align with low demand for paper-based packaging; and when this happens, we all know that prices drop. Words that many of my contacts have been using to explain the current value of these bulk grades include “collapse”, “shatter”, “crash” and “catastrophic”. As usual when prices fall this low, the cost to process and bale recovered fibre at a MRF far exceeds the market value of the paper. While no MRFs readily admit it, it would not be unheard of for MRFs to be sending loose tons directly to landfill because, as sad as this may be, disposal is sometimes the most viable economic solution.
More of the same seems likely in the short term, but the tide will turn and demand will again increase. The only questions are when and by how much.