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OCC down for third straight month for US mills, falling $5 in four US regions as demand from China remains soft

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OCC down for third straight month for US mills, falling $5 in four US regions as demand from China remains soft

June 06, 2014 - 11:31

OAKLAND, CA, June 6, 2014 (PPI Pulp & Paper Week) -Old corrugated container (OCC) pricing for US mills declined in most of the country for a third straight month, with sequential drops of $5/ton in four regions, contacts said as of June 5.

The declines wiped away the $15 and $25/ton increases at US mills in early March. Year-over-year, this put OCC's national average down to $97/ton -- $9 less than in June 2013.

The key to the price fall was slower export demand, contacts said this week.

They claimed less-than-strong demand from China, India, and Mexico meant additional bulk grades remained at home for US mills. Some suppliers even claimed that some mills didn't beat down pricing as they faced an upcoming Fourth of July holiday when deliveries will be cut for at least four days.

"The fear of the Fourth of July is going to be worse than the actual Fourth of July," explained one buyer for several company mills in the South.

Based on PPI Pulp & Paper Week pricing, July averages only increased once in the last three years over the June levels at US mills.

Overall, OCC and sister grade new double-lined kraft corrugated cuttings (DLK) were the only ones that declined for US mills, vs May 5 levels, according toP&PW's survey. All other materials held unchanged on price, although there was talk about possible upticks on high grades in coming weeks.

OCC.OCC declined $5 in New York/Northeast, Chicago/Midwest, Dallas-Houston/Southwest, and the Pacific Northwest. Interestingly, levels held unchanged in the two largest OCC markets, California and the Atlanta/Southeast region. Los Angeles/San Francisco is, by far, the largest US OCC export area, while the Southeast is the largest OCC consumer for an array of containerboard mills spread across the South.

In California, some mills were gaining lower pricing yet some suppliers claimed no pricing change on OCC.

The declines put in place unusual regional differences, with the Southeast level $25 more than in the Midwest, the Southwest $15 less than the Southeast, and the Pacific Northwest $20 less than in the San Francisco Bay Area.

Export pricing declined on all bulk grades, with the biggest fall on OCC. Los Angeles and New York/New Jersey OCC was down $5 and $4 FAS, respectively, contacts said.

Since March, export OCC is down $25/ton FAS at Los Angeles-Long Beach ports, according toP&PWpricing. Delivered to China's main ports, US OCC was priced just below $200/tonne.

One contact with a major exporter believed export OCC was "at bottom" and would revive upward soon. Others weren't so sure, either for the export or domestic market.

"China has not been the market driver we knew for a while now," said one US supplier for both the export and domestic markets. "Tons are available to domestics, and domestic demand waxes and wanes. Sometimes, like the end of last month around the holiday weekend, we get a flurry of activity. ... However, it's not sustainable. Notice -- I said we sell it more quickly, not that we sold it for more money."

In China, "demand for recovered paper is weak and very price/quality sensitive," said a supplier. "Mills are looking for cheap and good [quality], as compared to volume in the past. There is definitely no issue in getting the volume they require. The inventory level of recovered paper is not high, but because of the market situation on their sales side (for linerboard, corrugating medium, and boxboard), even sub-$200 pricing is not able to stimulate sales in any substantial demand at this moment."

For India, a supplier said "demand is there but not strong."

"Where I was having to make offers last week, (buyers) are actually coming in with offers this week," the contact said. "Keep in mind, though, that the monsoon season is approaching so unless there is a long transit time with arrival in 60 days or more, buying will be limited."

For Mexico, "OCC came to a complete stop for non contracted tons," one US supplier said.

US mills benefited from the softer export demand, a buyer for a small board mill in the US East reported.

"I'm still receiving plenty of offers for OCC," the buyer said. "Currently, I'm not in need of the extra fiber, so I'm turning most of them down, unless they are willing to take a low number for the tons. Some of them have."

"We're fighting to get our inventory down and we're getting a lot of offers," said another buyer for several US board mills.

Contacts reported DLK in oversupply. As a result, DLK dropped slightly deeper, by $5, in price than OCC in the Northeast, Midwest, and Southeast.

ONP/mixed paper.Export mixed paper and old newspapers (ONP) No. 8 pricing dropped somewhat, yet domestic levels held. Some contacts told of higher pricing for No. 8 in the Southeast, but it was not widespread.

A push continued on two fronts for "extra clean" ONP and also for combining ONP into mixed for a premium mixed grade.

"People are paying for higher quality to grab it for their machines," said one supplier in the South.

Several mill contacts said they believed that some ONP was being recast as mixed paper.

"One day they call it No. 8 news. The next day they may call it mixed paper," said one buyer for a large mill system.

Based on their national averages, mixed paper was $12 less than ONP No. 8. Both were down $5 for June 2014 vs their June 2013's averages.

OP.High grades remained unchanged in price, but both buyers and sellers noted that they expected reduced generation of office paper (OP) in coming weeks and saw the potential for higher July pricing.

A main supplier told of a "trending toward tightness in terms of supply" as well as reduced generation and increased Away-from-Home tissue paper product output this summer.

Also, India was "buying more OP" and "they also will only buy close to 100% unshredded," and Mexican demand dropped off somewhat after being strong in the first quarter, contacts said. Kimberly-Clark Mexico is to start up a new tissue machine at its Ramos Arizpe mill in August.

OP's national average this month was up $8 vs the June 2013 average.

Pulp substitutes.There was some higher pricing on hard white envelope cuttings reported in the Midwest, contacts said. The movement up was not across-the-board.

All in all, with stable pricing on most grades yet the continued small declines in the largest material by volume, OCC, one supplier was not alone in being unclear about the market condition.

"Our suppliers had gone through a two-week stint of higher output, on all things: DLK from boxmakers, coated book stock and WL (sorted postconsumer white ledger) from printers, (and) HWS (hard white shavings) from converters etc. All was on an uptick. So, now, we are past the holiday and this week is quiet. No calls for tons. Just quiet. Hard to know what's next. A further slump? Or, another spurt of activity?"

A July 1 deadline is set forthe labor contract between theInternational Longshore and Warehouse Union(ILWU) and thePacific Maritime Assn(PMA), reports said recently. The contract pertains to workers at 29 West Coast ports. Talks started in April, contacts said. "We know they have been talking but they have been extraordinarily quiet about any progress," said one contact late this week.Hapag-Lloydrecently informed its customers that it will levy a congestion surcharge if there are work stoppages, theJournal of Commercereported.

A fire caused about $700,000 in damage atRockTenn's recycling plant in Tampa on May 21, local media reports said. The fire started while OCC was being offloaded, according to a fire department report.

USrecovered paper exportsincreased 12% in March, over February's total, to 1.7 million tonnes, based on figures from the US Dept of Commerce, Bureau of Census. In the first quarter, exports were down 0.9%, with OCC off by 71,000 tonnes at 2.24 million tons and pulp subs up by 74,000 tonnes and 24.7%. Export pulp sub pricing also increased 23.7% in the first quarter vs first quarter 2013 pricing.

For key recovered paper grades,China's paper and board production in 2013 was down about a 1.3 million tonnes or 1.37% vs 2012 production. Of the 1.3 million, linerboard production was down about 400,000 tonnes, cartonboard about 300,000, and newsprint about 200,000, according to theChina Paper Assn.

AndritzsaidXuan Mai PaperinVietnamstarted up a 350 tonnes/day OCC processing line in the first quarter, and that orders are in for OCC processing lines fromSiam Kraft Industryin Thailand andP.T. Mekabox Internationalin Indonesia.

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