Recovered paper markets for the rest of the year: What to expect

By Hannah Zhao, RISI

After falling for about half a year, the national average price of OCC in the US market finally bottomed out in April and has continued to climb since, reaching US$106/tonne (metric ton) in July, the highest level since June 2014. The price run for mixed paper and old newspaper (ONP) during this period was even faster. The recent price jump reflected the rebound in export demand and the limited supply for these grades, especially for ONP and mixed paper.

According to the latest trade data, the US net exports increased by 1% year-over-year in the first five months of 2016. Despite the 5% drop in exports to China, the growth in demand from other Asian countries—such as India, Indonesia, Thailand and Vietnam—helped hold the overall export sector stable early this year. However, the latest Chinese trade data show that China’s recovered paper imports inched up marginally by about 0.6% year-over-year in the first half of this year, and its imports from the US increased slightly by 4% during the same period. This is more consistent with what we have heard and seen in the markets, and we expect to see the June and July US trade data, which will be released in the future, showing a similar story.  

Slowing down
Apparently, China is still at the center of the world recovered paper market, and its development continues to be a key factor directing the global market’s movements. So what’s going to happen in China during the rest of this year? Despite Sun Paper’s two new containerboard lines with combined capacity of one million metric tons, we are not very optimistic about total Chinese demand and imports of recovered paper for the remainder of 2016.

China recently reported slightly better-than-expected GDP growth of 6.7% in the second quarter on a year-over-year basis. But the economy is expected to slow somewhat in the rest of this year as a result of its less promising domestic situations and great uncertainty in the global economy. The impact of the G20 summit in Hangzhou City, which is believed to have driven up Chinese recovered paper imports in the past few months, is anticipated to fade soon. After all, the overall manufacturing sector and paper packaging market in this country have remained less promising.

“Other Asia”—the region outside of China and Japan—is another important player in the global recovered paper markets. Relatively healthy economic conditions, especially in the manufacturing sector, have supported the regional paper packaging markets and, as a result, recovered paper demand. US recovered paper exports to the region grew by more than 20% year-over-year in January-May. Australia, another major recovered paper seller, saw a similar story. Over the first five months of the year, Australian exports to China declined by 9%, while its exports to Other Asia outside of China and Japan increased by 10%. Nearly one million metric tons of new recycled containerboard capacity is planned to start up in Vietnam later this year. This will likely stimulate more recovered paper imports from overseas.

Brexit effects in Europe
The Western European market has been fairly stable so far this year. The Brexit vote has not had any significant impact on the local recovered paper market yet. The revaluation of the British pound should have made the UK recovered paper more attractive to Asian and European buyers, but thus far we have not seen any major price erosion in the Continental European markets, thanks to strong domestic demand and limited supply in this region in the summer holiday season.

Domestic prices for OCC rose by about €5/metric ton in Germany and France in the first half of July, but fell by €10/metric ton in the UK (€10 = about US$11.28). Looking forward, the upcoming recycled containerboard lines in Continental Europe will add further upward pressure on the local recovered paper pricing if they start up as planned. But the possible aftereffects of Brexit cannot be dismissed.

As one of the most important players in the global recovered paper markets, the US market will surely be impacted by the developments in China and Other Asia. We do not foresee a strong increase in domestic demand over the latter half of 2016, but hopefully exports, especially to Other Asia, will keep the overall US market balanced.

Hannah Zhao is senior economist, recovered paper, for RISI.  She is the coauthor of several RISI Outlook reports including: OCC/UKP Market Analysis and Outlook; Outlook for Global Recovered Paper Markets; and The China Recovered Paper Market: A Comprehensive Analysis and Outlook; as well as World Recovered Paper Monitor,World Pulp & Recovered Paper 5-Year Forecast, and World Pulp & Recovered Paper 15-Year Forecast. Email: hzhao@risi.com.

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