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US OCC prices stay high after rebound in China as traders drive market

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US OCC prices stay high after rebound in China as traders drive market

January 02, 2014 - 14:57

SINGAPORE, Jan. 3, 2014 (PPI Asia) -Prices for most imported recovered paper (RCP) bulk grades have been creeping up in Asia since mid-December despite sluggish paper and board (P&B) business in the Chinese market.

The benchmark grade, US old corrugated containers (OCC), saw a price rebound in the third week of last month and its levels have been fairly steady since then.

The grade is now going for $210-213/tonne after climbing $3-5/tonne from three weeks ago.

US OCC prices plunged $22-25/tonne over November, from $227-232/tonne to $205-207/tonne.

The erosion came after dominant Chinese traders managed to haggle down levels of the OCC they bought in the USA, at a time when US sellers were under pressure to clear stocks due to an upsurge in collections after the Thanksgiving holiday there at the end of November.

These players, the overseas purchasing arms of top Chinese recycled containerboard producers such as Nine Dragons Paper (Holdings), Lee & Man Paper Manufacturing and Jian Paper, are increasingly dominant in pricing in the Asian RCP market due to their quasi-oligopolistic positions in both the US and Chinese markets.

They buy big volumes in the USA, having gained the upper hand in negotiations there over last year when the Chinese government implemented strict inspections of RCP imports under the Green Fence regime.

Wary of their RCP cargoes being rejected at Chinese ports by customs authorities, many US sellers opted to sell tonnage to the Chinese traders, who knew the Chinese inspection system better than foreign suppliers, to ensure smooth business.

The traders ship a big chunk of the RCP bought overseas to their own mills in China, which serves as a cushion against volatility within the Chinese market, while selling the surplus to other Chinese buyers.

These traders have stepped up their buying activity in the USA and Europe since mid-November, so prices for several grades have risen.

The US OCC uptick has had a knock-on effect on pricing of OCC imported from Europe and Japan in the Chinese market.

European OCC (1.05) levels have gone up $5-9/tonne over the past three weeks, closing at $192-195/tonne.

Chinese customers regard the European grade as a substitute for domestic OCC. They are stocking up on the grade because of its reasonable prices, to cover paper and board production in late February and March.

Japanese OCC levels have also been driven up slightly, up $1/tonne at the low end of the range to $196-197/tonne.

Buyers have actually reduced purchases of the grade, as the tonnage ordered now is likely to end up arriving in China in late January.

Port logistics and inland transport are expected to grind to a halt one week before the Lunar New Year on January 31.

However, the grade's prices have been kept high due to dwindling availability, resulting from improving demand in the Japanese market.

RCP permits release in China:The Chinese authorities issued the first batch of 2014 RCP import permits on December 13.

60 firms that applied to import mixed paper, which is classified as a restricted grade subject to strict inspections due to environmental concerns, have got 8.74 million tonnes worth of permits approved.

Also on the list are 140 companies with approved permits for a whopping total RCP tonnage of 31.21 million tonnes.

The decision, which came earlier than expected, is a welcome relief for Chinese customers.

Mixed paper sees mixed pricing:The Chinese P&B market has remained in a downturn, hit by overcapacity and resultant stagnant pricing.

Mills in the cartonboard production hub of Fuyang are to take downtime this month.

They have cut purchases of mixed paper, which is used to manufacture grayback coated duplex board.

But pricing of the grade imported from the USA and Japan has been tenacious, thanks to dwindling supplies during the Christmas and New Year holiday period.

US mixed paper levels have inched up $5-7/tonne to $160-165/tonne.

Japanese mixed paper is up $3-4/tonne to $204-205/tonne.

But European mixed paper (1.02) has slipped $5/tonne to $150-155/tonne.

Chinese buyers have continued to stay away from the grade, which was Green Fence's prime target of intensified inspections at Chinese ports last year.

ONP down:Newsprint mills in China took a hit last month, smacked by price falls in the domestic market.

To slash costs, they have cut spending on old newspapers (ONP) imports.

Falling demand has led to price erosion for US ONP, which is changing hands at $170-175/tonne, down $3-7/tonne.

European ONP (2.01) has flatlined. Its supply volume has been small but demand is fairly steady.

Japanese ONP has nonetheless edged up $1/tonne at the low end of the range to $216-217/tonne, owing to extremely tight supply, according to suppliers.

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