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US OCC prices edge down after passing $230/tonne mark in China

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US OCC prices edge down after passing $230/tonne mark in China

August 29, 2013 - 17:59

SINGAPORE, Aug. 30, 2013 (PPI Asia) -Prices for US old corrugated containers (OCC) have softened after peaking three weeks ago at $230-232/tonne in China, closing August at $226-228/tonne.

The benchmark grade's levels had kept climbing for almost three months since touching bottom at $200-203/tonne in mid-May.

The price gains were bolstered by new recycled containerboard capacity coming on stream, expected to total 3.5 million tonnes/yr this year.

Large producers, such as Nine Dragons Paper (Holdings), Lee & Man Paper Manufacturing, Long Chen Paper and Yuen Foong Yu, were the main buyers.

But the growth decelerated once US OCC prices exceeded the $230/tonne mark in early August.

Large mills appear to have finished stock building and reduced purchases of the grade, while medium-sized ones are unwilling to pay over the $230/tonne mark, said a major supplier.

"Previously when prices were climbing, usually driven by big buyers, in a tight market, smaller customers would jump in to snap up tonnage, leading to prices spiraling up," the source observed.

"The mindset of those smaller buyers has changed this time around. They adopted a wait-and-see attitude when sellers refused to cut prices."

At the end of the day, despite limited supply due to poor recovered paper generation in the USA, available volumes increased and suppliers caved in, cutting prices to woo customers.

In the same fashion, Japanese OCC peaked at $213-215/tonne last week before slipping to $210-211/tonne.

With US and Japanese OCC growing expensive, many Chinese mills have turned to domestic collections, which have increased over the summer period.

Prices are lower than those of imports. Levels for Chinese mixed paper and corrugated board, which comprises a minimum of 60% OCC, have shifted from RMB 1,050-1,220/tonne ($171-199/tonne) a fortnight ago to RMB 970-1,345/tonne.

Prices include 17% VAT.

Post-consumer OCC has edged up RMB 40-60/tonne to RMB 1,270-1,380/tonne over the past two weeks.

Another premium OCC grade, pre-consumer and imports, is going for RMB 1,350-1,480/tonne, compared to RMB 1,330-1,520/tonne in most of August.

The price surge in US OCC has widened the gap between the grade and the other two US bulk grades, old newspapers (ONP) and mixed paper, to around $70/tonne.

Green Fence policy stays:Such a huge gap is unusual.

Suppliers have attributed it to intensified inspections at Chinese ports carried out by the customs authorities under "Green Fence" policy, which targets ONP and mixed paper imported from the USA and Europe, and also to the slumping newsprint and grayback cartonboard market in China.

"The Chinese customs will continue to enforce the same strict inspection rules that have been implemented since February at ports," said a Singapore-based trader, who recently met with Shanghai custom officers in her trip to China.

"The authorities will stick to their guns, disregarding business losses caused by the new regime."

While availability is in decline, demand for ONP and mixed paper has also shrunk.

Newsprint and grayback cartonboard mills are struggling with dwindling orders and poor pricing in the domestic market.

Most mills have reduced purchases of the two grades for the past several months as a result.

Some of them have come back to the market and bought volumes to replenish depleted stocks.

As prices are low, Chinese buyers are willing to accept small hikes when stocking up on the two grades.

The restocking has pushed up US ONP levels slightly. They climbed $1-2/tonne to $158-162/tonne over the past two weeks.

Mixed paper has edged up more, climbing $4-5/tonne to $155-157/tonne.

Japanese mixed paper is up $4/tonne to $170-172/tonne, while Japanese ONP has dipped $1/tonne at the top end of the price range to $205-206/tonne.

European imports suffer:European recovered paper (RCP) imports were the Green Fence's prime target when the campaign was launched.

Thousands of RCP containers were held at various ports in China and both sellers and customers ended up suffering huge losses.

With the reputational damage done to European imports, despite quality having since been improved significantly, most Chinese buyers are still staying away, said a major European supplier.

"It remains difficult to get new customers [in China], and buyers have now compared European OCC with local OCC grades," the source lamented.

The contact said Chinese buyers will now purchase European OCC only when facing a shortage of domestic OCC.

Moribund demand for European RCP has stymied its business in China and prices have been stagnant for the past several months.

European OCC (1.05) levels have stayed flat at $193-195/tonne.

Pricing of European ONP and mixed paper improved slightly in late August. But volumes have been small.

European ONP has inched up $2/tonne at the top end of the range, changing hands at $170-175/tonne.

European mixed paper has fared better, selling at $145-148/tonne, up $3-5/tonne.

By Nick Chang, Editor,PPI Asianchang@risi.com