European PfR prices remain under pressure at the end of 2021
How rising inventories, supply chain challenges and pandemic lockdown measures are impacting price
Following continuous price increases for most of the year, a month of steady levels in October and a first round of price drops in November, paper for recycling (PfR) prices remained under pressure in December. According to market insiders, prices for the bulk grades sorted mixed paper and board, supermarket corrugated paper and board and old corrugated containers (OCC), which decreased by some Euro 5-15 per tonne in continental Europe and around £5-10 per tonne in the UK in November, continued to show some downward tendency. However, the decreases varied depending on the region and grade.
As in the previous months, the overall downward development was attributed to improving collection volumes and rising inventories on both sides of the market. At the same time, exports continued to be on the low side, increasing the available volumes on domestic markets in Europe. Still, the effect of new lockdown measures in parts of Europe and worries about a deterioration of the already tight transport situation buffered the expected price drops, at least in the UK and central Europe.
Prices for the deinking grades also receded slightly again in December, with contacts reporting drops of around £5-10 per tonne in the UK and some Euro 5-10 per tonne in continental Europe. As regards the medium and high grades, most market insiders said that prices remained largely steady month on month.
Bulk grades edge down
While demand for sorted mixed paper and board, supermarket corrugated paper and board and OCC remained at healthy levels in December, the ailing export business gave European PfR buyers some leeway to lower domestic prices. According to market players in southern Europe, prices for the bulk grades decreased by up to Euro 15 per tonne. Supermarket corrugated paper and board and OCC were reportedly particularly affected, while sorted mixed paper and board levels were slightly more steady.
According to contacts in Italy, prices for supermarket paper and board and OCC dropped by up to Euro 10 per tonne in December, while levels for sorted mixed paper and board receded by approximately Euro 5 per tonne.
Market players in Spain reported decreases of around Euro 15 per tonne for all bulk grades. “The market for the brown grades was already imbalanced, with more supply than demand, in November, and thus prices suffered an erosion of about Euro 15 per tonne at the beginning of December,” one of them said.
European paper mills continue to increase inventories
He added that paper mills had healthy stock levels and that inventories on the supply side were also increasing, setting the scene for lower prices in spite of two public holidays on December 6 and 8. “Demand from domestic paper mills was still very high, but good supply from neighboring countries, mainly France, and extremely low export demand were the main drivers of the price movement,” he noted.
Market players in the UK and Germany generally reported smaller decreases for the bulk grades in December. According to UK contacts, domestic prices for sorted mixed paper and board were almost unchanged month on month, while OCC was up to £10 per tonne cheaper than in November.
In Germany, the development depended on the region, with high pressure due to low exports in the north and good demand from neighboring countries supporting domestic levels in the south of the country. “Demand from Austria is quite high in southern Germany. The country is in a severe lockdown and paper mills from the Alpine region are trying to source massive [PfR] volumes in southern Germany,” a market insider reported.
Another factor contributing to relatively stable PfR prices in Germany in December was the fact that many paper mills decided to take hardly any downtime around the Christmas holidays. “I don’t think I’ve ever seen anything like this. There has always been a production stop of at least one week after Christmas Eve at German mills,” a contact commented. “But apparently [paper] demand is so high this year that they decided to keep running and, of course, they need sufficient raw material supplies to do so,” he added.
Stocks at paper mills were reportedly high in December. Still, several were seeking additional volumes due to fears over increasing transport issues around the holiday season.
“Let’s face it, transport has already been an issue most of the year, and the situation will get worse. Eastern European drivers will go home for the holidays and due to corona they might leave earlier and come back later than usual, depending on the development in their home countries and potential quarantine requirements upon return,” a market player commented, and several of his industry peers shared this view.
“I expect transport to be a nightmare until at least mid-January and maybe even until the end of the month,” one of them noted.
Medium, high grades steady
Prices for the medium and high grades remained largely unchanged in November, according to market players.
“The market has calmed down. Supply improved [in December], while demand was stable. Suppliers’ inventories were still low, but paper mills had normal stocks. All in all, December prices were steady at November levels,” a market insider noted.
Asia will be key in 2022
Looking ahead to the PfR market and price development in early 2022 and beyond, most contacts said in December that the export business would be one of the most important factors in the new year.
“Exports were extremely low during most of 2021. Still, domestic prices kept rising thanks to all the new packaging paper capacities that came online across Europe,” a contact said, warning, however, that this trend will not last forever. “Booming e-commerce, plastic substitution and whatever else, even the packaging market will be saturated at some point,” he stated.
“The future [market and price] development will depend on exports. Supply is good, as always in December, and demand is still high. But we don’t know if exports to the Far East will be coming back in the next few weeks, changing the current trend,” another contact noted.
Fastmarkets Asia analysts report that weakening demand and logistical logjams continued to weigh on OCC imports in South Korea, Taiwan and Southeast Asia (SEA) in December.
“Sources reported that the availability of brown grades for export has improved in the USA and Europe and that vendors were keen to get rid of stocks piling up at their warehouses before Christmas. However, the international shipping crunch seems to have gotten worse, with sellers indicating it was increasingly difficult to book vessel space for [PfR] cargoes, especially to destinations in SEA like Indonesia that require transshipment,” PPI Asia reported recently, adding that some shipping lines had cancelled services to such ports, citing long queues of vessels at anchor waiting to offload.
Some sources in Europe reported in early January that demand from Asia had improved somewhat. “The volumes are not large, but the good news is that prices are at domestic European levels and sometimes even slightly higher,” one of them said.
Others warned, however, that the development could be nothing but a flash in the pan, as major downtime in China in the run-up to and during Chinese New Year holidays dampened hopes for a structural revival of exports.