The following article is from the Paper Spotlight session at ISRI2021. If you would like to watch this session in its entirety, you can still register for ISRI2021 here. This session, along with others, are available to attendees on demand.
When Megan Workman started at Fastmarkets RISI she learned why the company hires journalists like her. “Because journalists will ask, ‘why,’” Workman says. As the price reporter and editor for recovered fiber, she finds the “why” behind the numbers. “The price is important but I want to find the market dynamics,” she says. “I want to figure out why things are the way they are.”
During the Paper Spotlight session at ISRI2021, Workman and Joe Pickard, ISRI’s chief economist and director of commodities, discussed the outlook for the paper industry. Recovered paper has endured volatility over the last few years caused by many unexpected changes in: supply, transportation, trade regulations, rising costs, and the COVID-19 pandemic. Market players adapted to these changes in ways different than those used in traditional market cycles.
On the domestic side, mills are adding to capacity, investing in equipment, and buying more mixed paper for supply availability reasons. These changes allow mills to better handle grades of paper they didn’t use before. While demand is good, several factors negatively impacted production. Along with COVID-19, several issues at the beginning of 2021 affected the domestic market including the Westrock ransomware attack messing up orders, and the freeze in Texas causing problems with movement of material and plants forced to shut down.
As the U.S. recovers more paper than it recycles, the industry relies on the export market. China was the main buyer of recovered paper until its ban at the end of 2020. From 2015 to 2020, old corrugated container (OCC) imports to China declined 55%. Despite exporters’ concerns, the tons have found “new homes” in other markets, Workman says.
India, Indonesia, South Korea, Taiwan, Thailand, and Vietnam are the major Asian markets taking U.S. exports of recovered fiber. In January 2021, India bought 391,630 tons of U.S. recovered fiber—on par with the amount China had imported in January 2020. Europe is also a major buyer of U.S. recovered paper. Like elsewhere, COVID-19 lockdowns in Europe slowed or stopped recovered fiber collections. “Countries are coming out of lockdown and their collections slowed so they’re hungry for fiber,” Workman says.
Trade between North and South America is also increasing, Workman notes. With paper packaging supplier Grupo Gondi opening its huge machine in Mexico, demand for U.S. OCC is up there, and increased demand from tissue mills there, too. There is increasing trade with South America and Brazil on the brown and white sides.
Recent export prices are higher off the U.S. East Coast than West Coast. Historically, the West Coast had higher recovered paper pricing because most tons went to China. But China’s ban coupled with India becoming a major buyer led to higher East Coast prices. Also, with container shortages and shipping bottlenecks, it’s easier for exporters to ship off the East Coast.
Mills are concerned about an upcoming supply shortage from a lack of sorted office paper (SOP). Despite the recovering economy, offices that are open haven’t picked up on shredding, which affects supply to mills. To stay ahead of the potential shortage, mills are buying OCC they don’t currently need.
The pandemic and lockdowns slashed the away-from-home (tissue) sector. The mills are still slow, but Workman notes they’re looking for things to get back on track by June.
Workman discussed drivers affecting mixed paper. In 2018 and 2019, this grade sat in a negative average or $0, but in 2020 it had its second highest consumption year in a decade. Mills started taking mixed paper when prices were low and supply was high. (Pricing has since increased significantly for mixed with increased demands, Workman notes).
Pulp substitutes have gone up $45, which Workman says is huge news. High price increases from virgin pulp shifted demand back to the secondary side.
Recovered Paper Demand Worldwide
Recovered paper demand is expected to grow worldwide from 2021 to 2025. In 2019 and 2020, pricing for nearly every grade was down but this year they’re in the positive. In April 2021, OCC average was $88, up 24% from $71 in March. For the first time since 2017, OCC pricing in January 2021 increased in every U.S. region.
Workman noted OCC is rising because it’s the main component in brown recycled pulp, which China is currently demanding. The country banned imports of recovered paper but not brown recycled pulp. January alone saw recycled brown pulp pricing up $70 per ton from December. Workman noted her colleague Hannah Zhao, senior economist at Fastmarkets RISI, believes demand for recycled pulp from China will reach 5 million tons by 2025.
There are several factors affecting U.S. recovered paper pricing and demand. The pandemic put a strain on existing transportation problems. Exporters have encountered equipment shortages as well as vessel and container shortages. There have been less workers at the ports, staying home due to lockdowns or illnesses. Exporters are also facing issues of skipping vessels and empty containers returning to China. These issues cause booking problems and increased rates that then affect movement. Exporters hope for some relief on shipping issues by June. “They think ports will be cleaned up, and the vaccine rollout will help with worker and equipment shortages,” Workman says.
In 2020, recovered paper consumption domestically was at its highest point in a decade at 22.77 million tons—the most recovered fiber U.S. paper mills consumed in 10 years. It’s a good sign for the market, Workman says. More mills are opening and demanding paper. Mills that took in mixed paper have invested in equipment to handle the low-grade paper. Green Bay Packaging in Green Bay, Wisc. is one recent example of a new mixed user/consumer. On April 22, ND Paper’s mill in Old Town, Maine announced it will start making unbleached recycled pulp in addition to producing UKP. Despite the atypical changes for the market, pricing and demand are high for recovered paper.
Photo caption: Megan Workman, Price Reporter/Editor for Recovered Fiber at Fastmarkets RISI, and Joe Pickard, ISRI’s chief economist and director of commodities, discuss the outlook for the recovered paper industry during the Paper Spotlight session at ISRI2021.