It is a time of worry, whether you are an individual or business looking to pay your energy bills.
Of course, this is a global crisis and it is bound to have an impact on the recycling industry one way or another.
Paper mills are energy intensive industries and are potentially facing vast costs for their operations.
But as consumers, we will not buy as much stuff and eat out less as we channel more of our income into powering and heating our homes.
For those of us who trade paper and cardboard, this is bound to bring uncertainty.
In recent weeks, we have seen prices fall from the highs experienced in spring and early summer.
But in the UK, we are also in a bubble, because the PRN or PERN price has provided support to the value of the physical material.
Looking at the price data here on REB Market Intelligence, on 17 June, the price of OCC was £170 per tonne. On the same date, the PRN/PERN price was quoted as £11 to £12.
Last Friday (2 September), the price of OCC on REB was £115 and the PRN/PERN was £34 to £36.
Taking away the PRN/PERN price, you get £158.50 for OCC on 17 June and £80 for OCC last Friday.
Although the underlying price of £80 is weak, it still seems expensive when compared to the prices being paid in Europe and Asia.
When you look at exports, Europe has driven the market in recent months. As shown by the REB data for June, the EU was the biggest purchaser of OCC and mixed then. But our own data suggests that exports to mills we supply in Europe were down 20% on then. Indeed, there have been reports that German mills are saying they have good inventory of both feedstock and finished goods. That would not suggest the market is going to take off this month.
It also seems that India and South East Asia are sitting back, assessing the situation and only buying when they think the market is good value.
But we also shouldn’t forget we have had two years of surprisingly high prices. Again looking at the REB price series, 2020 saw a price range of £28 to £125 for OCC. Even with the PRN/PERN support, prices are still historically high. Even at £80, this would have been seen as a perfectly acceptable price in most years.
Of course, it is very difficult to know what the market will bring. On the positive side, the exchange rate favours exporters, while shipping prices do not seem to be responding to higher oil prices as yet.
But there is no firm place to land, as what we sell is still a global commodity.
All of the economic factors suggest we are in for a bumpy ride and we could see prices drop much further if mills stop buying recovered fibre.
Much will depend on how supply and demand balances out in the coming months, but it would seem likely that generation of material will be low, but so too will be the demand from mills.
But what I do know is that the paper and cardboard industry has always proved to be resilient during global crises, and I’ve no doubt we’ll be the same during this challenging period too.
Colin Clarke is managing director of Winfibre UK
