Europe

• Unusually balanced market gives way to supply tightness
• Players with scale and capital are pulling ahead
• Asian markets becoming pickier on quality

The Mirror publication covering this year’s first quarter described a market going through a structural adjustment and not just a rough patch. This was driven by: weak packaging demand; a pivot towards South and South East Asia after China pulled back from dry-ground pulp imports; and renewed freight risks owing to the situation in the Middle East. Far from conditions becoming easier in the second quarter, they actually worsened.

Having sunk to around Euro 105 per tonne late last year, European benchmark OCC climbed in the second quarter. Spot prices were in the Euro 122-137 per tonne range through May, with June expected to push towards Euro 130-145. Contract prices followed suit.

However, this wasn’t the packaging demand recovery everyone was hoping for; it was a supply story. Collection volumes remained weak, with material recovery facilities reporting less tonnage coming through the gate, while export demand - though selective - never really went away. Having been quiet for most of May, buyers in India came back in the second half of the month. Written off as a laggard in the first quarter, mixed paper encountered surprising demand from deinking mills.

So the “unusual equilibrium” we highlighted in the first quarter - with adequate supply and demand too soft for real tightness - has given way to a truly tight market. But it is tight because collection has dried up and not because Europe is suddenly consuming more packaging. This is a shakier foundation for these price gains than genuine demand growth would provide.

The rising freight risk around Middle East shipping lanes was flagged up for the first quarter. In the second quarter, that risk dominated the headlines. Following US and Israeli strikes on Iran, the Strait of Hormuz was effectively closed to commercial traffic and Houthi attacks resumed in the Red Sea. Both of these major maritime choke-points were disrupted at the same time - something with no recent precedent.

For European exporters, this meant Asia-bound transit times stretching out 10 to 20 days longer via the Cape of Good Hope, plus constantly-changing surcharges as carriers scrambled to cover higher costs and congestion. This is not the episodic volatility we described three months ago: logistics providers are now telling clients to plan for long-lasting disruption. Volatility itself, rather than any single price point, is now the real problem for traders. Larger operators with diversified networks can absorb it whereas smaller independent traders have even less room to manoeuvre than before.

The first quarter highlighted the role of “Other Asia” - Indonesia, Vietnam, Thailand and Malaysia - as the outlet replacing China following its withdrawal from recycled pulp imports, but that outlet became harder to rely on in the second quarter. Indonesian authorities cracked down on contaminated mixed paper shipments, holding containers at port and signalling a tougher line on waste imports overall.

This has scored a direct hit on the diversification strategy on which Europe has leaned. The constraint in the first quarter was buyer caution, with Asian mills ordering conservatively. The second quarter added a second one: stricter enforcement on quality at the border. Whether this is a temporary crackdown or a lasting policy shift is still unclear. Either way, it confirms that quality now matters as much as volume when it comes to maintaining access to these markets.

The EU’s revised Waste Shipment Regulation became a real cost centre in the second quarter. It now requires paperwork to run through the Digital Waste Shipment System (DIWASS) which entered effect on May 21 - a deadline industry groups had asked to be pushed back. Meanwhile, calls for EU-wide “end-of-waste” status for recovered paper gathered momentum, partly because of the compliance burden this new system creates.

In the UK, the shift from the old PRN/PERN system to the new Extended Producer Responsibility scheme for packaging has added another layer of uncertainty, even as underlying UK conditions held up fine. Mixed paper and OCC prices in May were flat to higher on solid export demand from Germany, France, Turkey and Asia. Poland, described as “surprisingly calm” in the first quarter, shifted gears too: producers pushed through price hikes on recycled corrugated material and started talking about kraftliner increases. This is proof that the corrugated packaging chain isn’t uniformly weak across Europe, even with soft demand overall.

Consistent with what was seen in the first quarter, with mills adjusting their strategies rather than just waiting out the cycle, several big moves occurred in the second quarter: Spanish producer Saica Group bought FCC Ámbito’s recovered paper collection business, deepening its control over fibre supply; UPM and Sappi told the European Commission that they plan to form a joint venture, pointing to further consolidation in graphic and specialty grades; Tetra Pak put Euro 60 million into a pilot plant in Sweden for paper-based barrier technology designed to replace aluminium foil in aseptic packaging - a longer-term boost for higher-grade fibre demand; and Essity opened a new recycled fibre plant in the UK, its biggest domestic investment in about 10 years.

None of these developments changes the supply-demand balance right now. But together, they back up the view that players with scale and capital are pulling ahead. They are the ones still investing through a soft cycle.

While our report for the first quarter called this a structural adjustment rather than a cyclical dip, the second quarter showed how fast that adjustment can accelerate once external shocks hit. OCC prices are up, but on the back of scarce collection, not a real demand recovery - and that distinction will matter for how long the gains last. Freight risk has gone from volatile to structurally broken, with no clear end in sight. And the Asian markets on which Europe depends for its exports are getting pickier on quality just as logistics make reliable delivery harder to pull off.

Heading into the second half of 2026, the lesson from the first quarter still applies but with higher stakes: winning in recovered paper trading isn’t about moving more tonnage; it’s about managing flexibility, logistics exposure and quality - each of which carries a lot more risk than it did three months ago.