Global recovered paper trade transformed by changing policy and consumer demand

Pandemic-induced demand for packaging and import regulations in key regions are driving huge changes in the recovered paper (RCP) market. What does the future hold? Hannah Zhao, our senior economist for global recovered paper, shared her insights at this year’s Fastmarkets RISI North American Conference.

China’s RCP import ban and changing global trade flows

Global RCP trade chart LQ.png

Total Asian recovered paper imports have declined in the last few years because of China’s RCP import ban and other Asian countries’ RCP import restrictions, as well as the complications brought by the pandemic.

Despite international shipping issues, other Asian countries’ RCP import levels rebounded in late 2020 and remained high through 2021, driven by strong paper packaging demand and China’s recycled pulp demand. The explosion of e-commerce, driven by consumer trends over the last couple of years, has resulted in an increasing demand for containerboard. This meant that producers are needing more recycled fiber than ever to keep up with the demand.

The global RCP trade volume remains high, with China and the rest of Asia being the key players that influence global market movements. Although China officially stopped importing RCP at the end of 2020, it remains one of the most important players in global recycled fiber market.

How will China make up for its deficit in recycled fiber? Swapping to recycled pulp, importing containerboard and increasing virgin fiber usage have all been discussed.

The OCC market tightens
A combination of strong demand, boosted by the growing e-commerce sector, and limited supply, caused by the decline in paper recycling efficiency, has kept the old corrugated containers (OCC) market strong in the last year and a half.

Strong OCC markets chart.png

OCC prices surged in 2021 worldwide. In North America, domestic OCC consumption increased significantly thanks to the strong growth in their containerboard output, including new recycled fiber-based containerboard capacity. In the first nine months of 2021, domestic OCC demand increased by around 7% year on year, meaning paper mills had to pay much higher premiums to secure OCC supply.

Europe saw a similar story. Strong domestic demand and supply disruptions in late 2020 and early 2021 caused by the pandemic triggered sharp rises in OCC prices as well.

In addition to the growing demand for OCC from domestic paper and board mills, demand for US OCC from abroad has been strong. Despite China’s ban on RCP imports, US OCC exports have increased nearly 20% year on year for the first eight months of 2021, after having declined continuously in 2019 and 2020.

Looking at Asia, we can see that China’s RCP import ban has greatly impacted the recycled fiber flow. Southeast Asian countries and India have increased their OCC imports significantly to support not only their paper and board mills, but also to produce recycled pulp and containerboards to be shipped to China.

Along with the strong North American and European domestic demand, issues with shipping, container shortage, port congestion and rising freight costs have made it very difficult for Asian paper and board and recycled pulp producers to secure supply of OCC.

Mixed paper markets face uncertainty
Mixed paper prices have recovered from a drop in 2018-19 and rose significantly in 2020-21, mostly due to the overall upward trend in the OCC markets.

In the US, domestic paper mills have improved their capability to process and use more mixed paper over time. After falling continuously for years, US mixed paper exports have also picked up significantly in 2021 and started to drive up prices.

However, uncertainty remains in the mixed paper trade policies around the world especially in other Asian countries, including Malaysia and Vietnam, where potential import policies have been announced.

What trends can we expect for the global RCP market?
Looking ahead, we are expecting many regions, including Asia, North America, Europe and Oceania, to see a significant increase in recycled containerboard capacity.

Asia will continue to have significant impacts on global RCP markets through their recycled fiber imports, including direct RCP imports and recycled pulp purchase. Chinese producers are looking for alternative fiber solutions, and recycled pulp and virgin fiber are just two considerations on the table.

OCC demand and supply balance will remain tight globally, and international trade will continue to be a very important player in changing global market dynamics. Therefore, we will see risks in policy changes in key Asian regions and pandemic-related logistics challenges.

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