Friday, June 10, 2011

The Market: Recovered paper could see big shortages over the summer

From The Paper Stock Report, June 10, 2011
Copyright 2011, McEntee Media Corporation

June 10, 2011
By Ken McEntee

Scrap paper traders are wondering whether summer will bring a spike in prices of old corrugated containers (OCC) and other grades. Since the beginning of June, export prices for OCC have moved upward about $10 a ton. But prior to that, even as OCC was been shipped out of the country in unprecedented levels during the first four months of the year, prices were relatively steady. In fact, pier prices in most markets actually were lower in May than in February and March.

In April, the latest month for which trade data is available from the U.S. Commerce Department, OCC exports to China reached 781,000 short tons – 10 percent higher than the record 710,000 tons in March. Yet FAS prices for China-bound OCC actually declined slightly between late March and late April. In New York, for example, prices dropped from about $202 per ton at the end of March, to about $199 per ton at the end of April, before sliding back up to about $202 in late May.

But traders note the seasonal downturn in OCC generation, and suggest that strong demand by domestic mills, along with Chinese mills kicking into high production season for end of the year holiday boxes could leave mills struggling to find tonnage.

On the other hand, other sources says, record volumes moving to China earlier in the year may have built inventories enough to avoid a surge in summer buying from mills in that country. Also, according to a West Coast broker, flooding and other severe weather conditions may reduce the supply of agricultural products this summer, meaning containerboard mills will be needing less OCC.

However, he says, “Mills are all saying that they have strong orders and they are nervous about the ability to gather up enough OCC through the summer.”

Export prices for OCC reached $230 per ton (FAS) at the Port of Long Beach during the second week of June, while going at $210 in Seattle. OCC exports out of New York were hitting the $210 per ton mark.

“OCC prices were flat for a long time,” said a broker in the Northeast. “Prices are starting to move.”

Still, he said he doesn’t expect to see a huge surge.

“I don’t know that we’ll see a huge spike, but if generation is down and demand stays strong, prices will only get stronger,” he said.

He, along with several other traders, noted that the three-day Independence Day weekend has some buyers nervous.

Traders reported that old newspaper prices (ONP) continue to hold steady despite a significant downtime and other reductions in ONP usage.

“Catalyst Paper’s Snowflake, Ariz. mill is down to half its normal consumption of ONP,” one supplier said. “At one point they has 215 boxcars from the Midwest lined up. They were delayed by the flooding and now they have a lot of fiber sitting down there.”

In Dublin, Ga., SP Newsprint was reportedly using about 500 tons less ONP per day than normal.

AbitibiBowater took market-related downtime at several of its mills in the Southeast U.S. and in Ontario. That was on top of mill closings by Blue Heron Paper, Oregon City, Ore., in February, and the, Katahdin Paper mill in East Millinocket, Maine, in April.

All of these capacity reductions are coming despite a weaker-than-normal U.S. dollar that is making U.S. newsprint attractive on the global market.

“Newsprint is a grade that is really hurting,” understated a supplier on the West Coast.

Chemical deinking grades, meanwhile, are in extreme short supply, causing some traders to wonder how mills will keep themselves furnished through the summer.

“Sorted office paper is under assault,” said a broker in the Northeast. “The pipeline is dry and there is nothing on the horizon to derail that trend. While the demand for away-from-home napkins is showing some signs of life, those mills are going to need fiber to produce their product. The price could go to the moon, but that isn’t going to create more paper.”

Sorted Office Paper (SOP) this month pushed up about $10 a ton.

Along with declining supply has come deteriorating quality.

A couple mill buyers reported that their old nemesis – self-adhesive labels – are beginning to be a problem.

“We’ve had a deinking specialist in this week to see what we can do about it,” said the buyer for a Northeastern tissue mill.

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