What is the global recovered paper market outlook for 2023?

Has the RCP market found a bottom yet? Take a deep dive into the volatile OCC prices and the challenges ahead

After a strong upturn in 2021, the global market for bulk grades of recovered paper (RCP) cooled off modestly in the first half of 2022 and then collapsed in the second half when the paper packaging sector, the major end-user of bulky RCP grades, slowed significantly for various reasons. Improvement on the supply side, such as the recovery in RCP collection as most countries and regions reopened their economies and the easing supply chain bottlenecks, also helped to calm the RCP markets.

Dramatic OCC prices in global markets

US average OCC prices slid steadily from the recent peak of $178 per tonne in the fourth quarter of 2021 to $145 per tonne in the second quarter of 2022 and then plummeted to $40 per tonne in the fourth; by comparison, the recent bottom posted at the end of 2019 was $28 per tonne. Similarly, Asian imported OCC prices declined from $309 per tonne in the third quarter of 2021 to $273 per tonne in the second quarter of 2022 and then sank to $153 per tonne in the fourth.

The European market differed from the North American and Asian markets for the first half of 2022 because of the turbulence caused by the Russian war in Ukraine, regional transportation problems and the energy crisis. German OCC prices were mostly stable and then rose to an all-time high of €177 per tonne in the second quarter of 2022 before tumbling to €61 per tonne in the final quarter.

Uncertainty in demand will be the biggest challenge for RCP markets

RCP markets stabilized at the beginning of 2023, with prices holding largely unchanged in most regions. But have they reached bottom and where is the global RCP market headed in 2023? While it is tough to make a reliable prediction with the paper and fiber industries facing so much uncertainty, we expect 2023 will be challenging for the global RCP markets, especially in the early part of the year.

Uncertain demand conditions from the paper packaging sector will be the biggest challenge in the global RCP markets in 2023. Although the global economy has recently shown more resilience than expected, the threat of a recession is still real in some regions, such as Europe and the US, as sticky inflation and the Russian war in Ukraine continue to weigh on their economies. And even if these two regions could avoid tipping into recession, their paper packaging demand and thus recycled fiber demand may not necessarily recover to stable growth in the near future.

There are some signs of hope, however, especially from Asia. China’s sudden reopening could not only pave the way for a rapid rebound in 2023 after one of its worst years of economic growth on record, but may also provide the boost the world economy needs through a recovery in its demand for commodities, consumer goods and travel.

Could China’s reopening bring a glimmer of hope?

The Chinese manufacturing PMI compiled by the Chinese National Bureau of Statistics rose from 47.0% in December to 50.1% in January, while the non-manufacturing PMI leapt from 41.6% in December to 54.4% in January after falling for six consecutive months. Although we expect a healthy recovery in Chinese economy in 2023, the extent of its economic rebound will depend on the developments of current and future waves of covid-19 infections, the effectiveness of its stimulus measures to boost consumer spending and the global economy.

In addition to the reopening, which could spur fundamental Chinese paper packaging and recycled fiber demand, the recent change in China’s import policy for many paper and board (PAB) grades could increase its PAB and recycled pulp imports and thus affect the RCP demand/supply balance in RCP export regions.

The Chinese government recently announced it would waive the standard most favored nation (MFN) tariffs of 5-6% on imports of 67 kinds of paper and paper converting products for 2023. The temporary drop in import duties could boost the country’s intake of both PAB and recycled pulp.

China started to import significant amounts of recycled pulp as early as 2018, but some rules and quality standards for recycled pulp imports remain unclear. For instance, some types of recycled pulp had been reported as PAB when going through Chinese customs and importers had to pay a 5-6% duty to purchase it, while there was no duty for the recycled pulp being reported as regular recycled pulp. Chinese recycled pulp imports declined in 2022 for the first time since 2018, and the recycled pulp being reported as PAB was responsible for all of the drop due in part to the extra 5-6% import duty.

The lifting of the import duties, therefore, is likely to boost Chinese imports of recycled pulp somewhat in the near term. As the major suppliers of containerboard and recycled pulp to China, Southeast Asia and India should benefit from the increase in Chinese imports, and this region may bring in more RCP from Europe and North America to run its PAB and recycled pulp machines to satisfy Chinese demand.

Overall, we believe 2023 will be difficult for the global RCP markets, with uncertainties and risks continuing to stem from the global economy. China will remain an important market player and will impact the global RCP markets through its imports of PAB and recycled pulp.

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