Containerboard prices unchanged in Brazil despite weak demand in March

Market participants suggested that an abundant supply of good quality kraftliner has helped stabilize prices

Brazilian demand for containerboard continued to be very weak through March, sources told Fastmarkets, adding that demand was not expected to pick up in the short term given a lack of positive news in the market.

According to market participants, the recycled containerboard business environment remained frozen, with buyers continuing to state that they have inventories and abundant supply of high-quality kraftliner.

Still, sources noted one bit of positive news for the market: China lifted its ban on imports of Brazilian beef in late March.

“This can help a little bit on a better April, as exports from Brazil were halted since February. The beef export market is a very hard user of kraftliner and corrugated boxes, but of course it alone will not be enough to heat the entire market,” a contact said.

Improved quality and high paper availability is helping to stabilize prices

After a small price drop in February, sources stated that prices were stable in March despite the feeble demand.

“We can lower the price as much as we want, and clients will not purchase now, so it makes no sense in dropping prices further. There is a lot of good paper [kraftliner] available, so recycled paper suppliers are stopping machines, taking technical downtimes, holding up as they can to reduce the pressure, so prices stabilized,” a source said.

A second contact pointed out that with more kraftliner available, the quality of corrugated packaging also has improved, which is helping to sustain prices in the entire supply chain.

“Combined with that, production costs remain very high for recycled producers, even with recovered paper prices dropping,” the second contact said. “Inflation is hitting hard, and no one wants to lose the boxes prices that were so hard to achieve as margins remain squeezed. In this environment, all producers are very cautious now, they understand that lowering prices too much will not bring demand back now.”

A third market participant noted that offers of lower basis weight kraftliner paper into the market also have been helping prices to stabilize, because buyers can use thinner paper while still maintaining the same quality of their boxes.

Companies and buyers are adjusting to the scenario of a lot of paper availability while quality is improving with all this virgin paper available.

“In the kraftliner market, this is helping prices to remain unchanged, too.” that source said.

Off-grade kraftliner tonnages were still being offered in the Brazilian market, Fastmarkets has learned. The market has been referring to this material as “edge” paper, also known as “paper ends,” which usually comes in smaller widths and is not available in large quantities at once.

Prices for these “edges” are lower compared with regular kraftliner purchases, but sources active in the virgin paper market said that the volume of the edges available is not sufficient to cover regular demand from the entire market

“Standard kraftliner prices are unchanged, and clients are able to negotiate more for quality now, while during the pandemic they were accepting any paper just to fill up their corrugators,” another contact said.

In this scenario, Fastmarkets’ price survey detected that kraftliner was still trading at 4,900-5,200 Reais ($935-992) per tonne, up 4.1% compared with a year ago. Fluting stabilized at 3,000-3,300 Reais per tonne, 4.5% lower than a year ago; meanwhile, testliner was negotiated for 3,400-3,800 Reais per tonne, down 2.7% year on year.

Are OCC prices at rock bottom?

Recovered paper prices, however, continued to drop. The price for old corrugated containers (OCC) reached 600-650 Reais per tonne, down by 16.5% in the annual comparison.

Views on this market were mixed, with some sources believing prices have reached the bottom, while others expected further drops until domestic prices have reached import levels.

“The problem is that we don’t see recycled materials collectors wanting to get paper anymore. You see boxes in the streets, in retailers, there is an excess of OCC and this is always problematic for the production chain, so I believe that there is no room for prices going lower than that,” a contact argued.

Export activity drops  

In the international market, Brazilian export activity remained low in the first two months of the year. Shipments of kraftliner dropping by 32.4% year on year to 55,510 tonnes in January-February.

Kraftliner sales to Argentina slumped 30.5% to 22,897 tonnes in the period. A new regulation from the Argentinean government has required the use of import licenses, making shipments into the country more difficult; at the same time, the country’s economy continues to face problems.

“Demand for the entire Latin American region is very weak now. We don’t see any signs of demand from countries like Ecuador, Peru, Mexico. There were some issues with the agriculture season, while clients still have inventories. Demand in the region should begin to rebound around June or July,” a contact stated.

This article was first published in PPI Latin America, the industry’s most trusted pulp and paper market news and prices for Latin America. Speak to our team to find out more.

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