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MRW : Recovered Paper Market Update


Although some of China’s small and medium-sized mill concerns have remained largely quiet on the UK scene in recent weeks, the leading purchasers in this market have continued to buy reasonable volumes. This is despite the Asian giant’s linerboard mills seeing continuing weakness in their sales of finished product.

UK mills have also been willing to pay higher prices for their old KLS supplies, with several sellers reporting that they had received more than £120 per tonne. The domestic price for mixed papers is said to be £90-£95 per tonne, or slightly higher in some instances, while exports of the same grade are attracting, typically, £105-£110.

Elsewhere, price movements have been relatively limited, with news & pams continuing to command between £125 and £130 per tonne on the home and export markets, and multigrade still at around £175-£180. Firm prices are also reported for the high grades of recovered paper.

In other related developments, experts are not anticipating that the earthquake and tsunami in Japan will have a major, lasting effect on recovered paper availability in the export markets. Meanwhile, after a period of weakening, basic freight rates into China have become more stable.

Latest figures from HM Revenue & Customs reveal that China took delivery of 2.673 million tonnes of the 4.352 million tonnes of recovered paper shipped from the UK in 2010. In the previous year, Chinese imports of UK fibre had amounted to 2.765 million tonnes. Nevertheless, the UK’s share of Chinese imports increased from almost 10% in 2009 to a fraction over 11% last year.

Germany became the UK’s second-largest export market in 2010 by increasing its purchased volumes from 130,000 tonnes in 2009 to 296,000 tonnes. In contrast, shipments to both India and Indonesia suffered steep falls in 2010: the total dispatched to the former slid from 379,000 tonnes to 280,000 tonnes and the latter cut its requirements for UK material from 423,000 tonnes to 256,000 tonnes.

According to one international trader, these declines reflect the fact that both India and Indonesia are relatively “price-sensitive” markets.

The other leading customers for UK recovered paper in 2010 were: the Netherlands on 247,000 tonnes (216,000 tonnes in 2009); Sweden on 168,000 tonnes (115,000 tonnes); France on 93,000 tonnes (84,000 tonnes); Spain on 65,000 tonnes (15,000 tonnes)and Belgium on 42,000 tonnes (27,000 tonnes).

In its spring 2011 update on China’s recovered paper market (see also MRW March 25), WRAP draws attention to a growing trend towards the substitution of imported material by paper recovered from the country’s own waste stream.

There has been a streamlining of the supply chains used by the larger Chinese mills with a view to securing stable resources at a reduced cost, with some having established agreements and joint ventures with local collection operations.

“Market contacts report that these supply chains are getting more effective and the number of intermediaries in the chain is falling,” states the report.

Regarding imports, “the importance of Chinese trading companies as recipients of imported recovered paper continues to fall relative to Chinese paper mills, indicating that Chinese paper producers are trying to cut costs by directly managing the supply chain”.

China’s per capita paper consumption remains only around a quarter of that in the US. This scope for continued growth in the Chinese paper sector is reflected, says the WRAP report, in a wave of recent and planned capacity expansions, particularly in the containerboard market. Based on existing announcements, China will be adding more than 13 million tonnes of new containerboard capacity between 2010 and 2012.

Analyst Pöyry forecasts that Chinese paper producers could be using close to 98 million tonnes of recovered fibre by 2020, equivalent to a 50%-plus increase on current levels. Nevertheless, Pöyry expects China’s demand for imports of recovered paper to remain at broadly the same level owing to the increase in domestic paper recovery.

WRAP adds: “Some market commentators envisage even stronger growth in [Chinese] paper and board output, and potentially more scope for growth in imports.”

China’s paper recovery rate has increased from 34% in 2006 to 40% in 2009, with Pöyry anticipating that 52% will be reached by 2020. With paper and board consumption forecast at 135 million tonnes by 2020, this equates to a supply of 70 million tonnes of domestically recovered paper and means China might satisfy 72% of its own demand.

The removal from January 2011 of the VAT rebate on Chinese domestically recovered paper has increased the costs of this material but, says WRAP, “it seems likely that the reliance on imported recovered fibre will fall in the longer term”.

Statistical analysis:

UK recovered paper collections and exports both received significant early-year boosts, according to statistics from the Confederation of Paper Industries (CPI) and HMRC.

Collection volumes in the UK leapt 9.8%, from 612,116 tonnes in January 2010 to 671,972 tonnes in the first month of 2011. But compared with the start of last year, weather conditions in the early weeks of 2011 were significantly more conducive to collection activity.

In January, the biggest proportional increase in collection volumes was reserved for the Class IV high grades (+26.7% to 75,751 tonnes). But impressive performances were also turned in by Class II corrugated & kraft with a 20.8% leap to 310,236 tonnes and by Class I mixed papers with an increase of 15.1% to 96,787 tonnes.

The odd man out was Class III newspapers & magazines, collections of which suffered a 10.5% reverse to 189,199 tonnes from 211,432 tonnes in the first month of 2010.

UK exports of recovered fibre enjoyed a strong final quarter last year and this momentum was carried into the first month of 2011. Overseas shipments increased by more than a fifth, or 20.4%, to reach 372,584 tonnes. This figure was higher than for all but four months of last year (February, March, November and December).

Once again, however, newspapers & magazines failed to read the script. In amounting to 71,599 tonnes in January, UK exports of this class of recovered paper were actually 18.2% lower than in the corresponding month of 2010.

This performance was in stark contrast to the 182.7% leap in overseas shipments of the high grades, from 6,989 tonnes in January 2010 to 19,760 tonnes in the first month of this year. Meanwhile, UK exports of mixed papers surged 37.3% higher to 81,154 tonnes while the increase for corrugated & kraft was 28.4% to 200,071 tonnes.

In contrast, January halted the UK recovered paper import momentum developed during the course of 2010. Last year, volumes entering the UK climbed almost 22% to 112,433 tonnes, whereas the first month of 2011 saw the inflow reduced to 11,516 tonnes – a whopping 36.1% decline when compared with the 18,033 tonnes coming into the country in January 2010. Imports of newspapers & magazines were almost 83% lower at a miniscule 2,381 tonnes.

The domestic paper and board production sector cut its consumption of recovered paper by 3% in January, with the total of 310,904 tonnes trailing that of the same month last year by almost 10,000 tonnes.

The largest proportional decline was registered by mixed papers (-23.7% from 25,457 tonnes to 19,416 tonnes), with usage of newspapers & magazines sliding 12.9% from 137,749 tonnes to 119,981 tonnes.

Corrugated & kraft and the high grades posted consumption increases, but these were of insufficient scale to offset the declines elsewhere. Usage of the former jumped 7.8% from 104,155 tonnes in the first month of 2010 to 112,285 tonnes in January 2011, while the latter’s total advanced 11.1% from 53,308 tonnes to 59,222 tonnes.

As for UK mill intake, the only decline in January this year was mixed papers, although the drop-off was a decidedly steep 21.6% from 24,331 tonnes to 19,077 tonnes.

Intake of newspapers & magazines climbed 6.5% from 128,414 tonnes to 136,727 tonnes, and the gains for corrugated & kraft and the high grades were, respectively, 4.3% and 3.4% to give January 2011 totals of, in turn, 109,162 tonnes and 54,859 tonnes.

Rolling together all these CPI figures, domestic mill intake of recovered paper was 3% higher in January this year at 319,825 tonnes versus the 310,492 tonnes of the same month last year.

UK stocks of recovered paper had ended 2010 on a relatively low 82,012 tonnes or the equivalent of 1.2 weeks’ supply at the prevailing rate of usage. January produced no change in this supply figure as the inventory crept up less than 700 tonnes to 82,697 tonnes.

Stocks of Class III newspapers & magazines surged from 24,145 tonnes at the end of last year to 32,539 tonnes by the close of January to propel supply from 0.8 to 1.2 weeks.

But this proved to be an exception: stocks of Class I mixed papers slid from 3,170 tonnes to 2,831 tonnes to trim stock coverage from 0.7 to 0.6 weeks; the Class II corrugated & kraft inventory fell from 35,506 tonnes to 32,383 tonnes, resulting in a supply dip from 1.4 to 1.3 weeks; and stocks of Class IV high grades took a relative battering as a slump from 19,191 tonnes to 14,944 tonnes slashed supply from 1.7 to 1.1 weeks.

For once, UK paper and board production statistics provided an unbroken column of positive figures.

Overall output in January was 5.4% higher than in the same month last year at 372,343 tonnes, thanks in large part to a 9.9% upturn in production of packaging papers and boards. Newsprint and sanitary & household both recorded output increases of 2.2%, and even printings & writings mustered an increase, of 5.2% from 36,549 tonnes in January 2010 to 38,449 tonnes.