The global recovered paper (RCP) market has been quite volatile for the past couple of years. After a strong upturn in 2021, the global market for bulk grades of RCP collapsed in the second half of 2022. Most regions found their bottoms at the end of 2022 or the beginning of 2023, and the global markets were, in general, weak on an annual basis in 2023, although the market paths differed significantly from region to region.
In North America, domestic old corrugated container (OCC) prices bottomed in the first quarter of 2023 but then rose steadily through the next three quarters, driven by the huge expansion in recycled-fiber-based paper packaging capacity and recycled pulp capacity. Low OCC generation due to sluggish paper packaging consumption also helped push OCC prices up in North America. Despite the persistent upward movement in the last nine months of the year, average annual US OCC prices still dropped nearly 50% from $115 per tonne in 2022 to $58 per tonne in 2023, compared with the bottom of $41 per tonne in 2019 and the peak of $137 per tonne in 2021.
The European market bottomed out in the first quarter of 2023 as well, but prices fluctuated in a low range through the rest of the year. Very weak domestic demand for recovered paper (RCP) from the paper packaging market left more material available to be shipped overseas, but exports were not strong enough to raise domestic prices much, especially in the second half of the year. On an annual basis, European OCC prices plunged about 45-65% in 2023.
The Asian market was also weak. Chinese domestic OCC prices fell to their lowest level since 2017 when China first announced its plan to ban all RCP imports. Overall demand for recycled fiber was sluggish because the Chinese economy and the paper packaging sector were struggling to regain their footing. The lifting of import duties on imported paper and board products also forced Chinese mills to push local OCC prices down to compete with overseas producers who have access to OCC at a relatively low cost. Prices of OCC in India and Southeast Asia also fell significantly due mainly to the sluggish demand for recycled fiber. However, mills in this region had to pay much higher prices for OCC sourced from North America than for European materials because of the strength of the US domestic market, especially in the second half of the year.
In many regions, RCP markets were showing signs of stabilization at the end of last year, but the Red Sea crisis threw the markets into disarray again. Asian mills had to reconsider how and where they should procure OCC from, given the longer travel times between Europe and Asia and the sharp increase in shipping rates. Looking ahead into 2024, there are several factors, as well as how they interrelate, worthy of being closely monitored for the direction of the global RCP market.
Without even considering its effects on the global supply chain, the impact of escalating geopolitical tensions, particularly the Red Sea crisis, has and will continue to pose significant risks to regional and global RCP demand and supply balances and the international trade of RCP. Western Europe, one of the major RCP exporters, shipped about 10% of its total RCP collection in 2022-23, 75% of which went to Asia. Europe has been the second-largest RCP supplier for Asia, accounting for about 15-20% of Asian RCP imports. Spiking shipping costs and extended travel times have slowed RCP shipments between Europe and Asia and encouraged Asian mills to adjust their procurement plans to secure RCP materials. As a result, considerable downward pressure was put on European domestic RCP pricing, especially when European domestic demand remained subdued, but prices climbed in other major exporting regions, such as North America and Japan. Depending on how long the Red Sea crisis lasts, global RCP trade flows and dynamics could be reshaped just temporarily or for a somewhat longer period, which will add more uncertainty to the European RCP market, which is already facing many policy-related changes.
Although China completely stopped importing RCP in 2021, it has continued to impact global RCP markets significantly through its imports of recycled pulp and finished paper and board products. The surge in Chinese imports of recycled pulp and containerboard from Southeast Asia has been one of the major drivers behind the sharp increase in Southeast Asian RCP imports. Despite the weakness in the Chinese manufacturing and property sectors through most of 2023, Chinese GDP expanded 5.2% last year, according to data released by the Chinese government on January 17. The momentum of the Chinese economic recovery is expected to continue this year if the major downside risk from the property sector can be managed well enough. However, boosting consumer spending, which has a strong effect on the paper and fiber markets, will remain challenging due to the concerning decrease in the birth rate and the still elevated unemployment rate, especially among young people. The birth rate fell from 6.77 in 2022 to a record low of 6.39 in 2023, and about 15% of people aged 16-24 (not including students) were unemployed in December 2023, according to the latest statistics.
Underpinned by the tight job market and strong consumer spending, the US economy showed high resilience in 2023 despite elevated inflation and high-interest rates. While the prospects for a soft landing have increased, we still think uncertainty and volatility could await the US economy in 2024, especially in the first half of the year. More specific to the RCP markets, domestic demand for RCP could rebound somewhat in 2024 as the paper packaging sector gains some strength after the destocking process in 2022-23. The Red Sea crisis could favor US RCP exports to Asia as well, at least in the near term. But as the ramp-ups of new recycled paper and board and recycled pulp capacity started in 2023 and the beginning of 2024 reached completion, the extra demand pull from the new lines, which helped tighten the US OCC market significantly during most of 2023, will gradually fade. On the supply side, OCC generation is expected to improve modestly and relax the demand/supply balance as the boxes consumed late last year gradually enter the waste stream.
Overall, we believe 2024, especially the first half, will remain challenging for global RCP markets, with uncertainties and risks stemming from geopolitical tensions and the global economy.
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