OCC’s 11-month price run finally ends, all average RCP prices remain up
September price peak marks fourth highest average in 30 years, bulk grade average pricing has shot up more than 150%
By Megan Workman, price reporter and editor for Fastmarkets RISI
An 11-month price-run for US old corrugated containers (OCC) halted in October as US mill demand pulled back some, pushing down premiums as well as OCC’s national average month-over-month, according to a Fastmarkets RISI pricing survey and market report.
At $164 per ton, US OCC’s national average in October fell $3/ton from September’s high of $167 per ton. September’s peak marked OCC’s fourth-highest US average in 30 years. Compared with the same month one year ago, average pricing for US OCC has increased $106 per ton, or about 183%, from October 2020’s $58 per ton average. Since the start of this year, OCC’s average is up $91 per ton, or 125%, from January’s $73 per ton average.
Bulk grade average pricing for OCC, mixed paper, boxboard cuttings, and new double-lined kraft corrugated cuttings (DLK) has shot up more than 150% in October 2021 vs October 2020. Mixed paper pricing, at a $98 per ton US average, has risen 300% vs October 2020’s $24 per ton.
Further, averages for every US recovered fiber grade are up year-over-year. For high deinking grades, another bump up in October increased sorted office paper’s average to $164 per ton, its highest pricing in two and a half years, save for May 2020’s $170 per ton average. Pricing for deinking grades has increased for 10 consecutive months.
‘Panic buying’ and ‘poaching’ pause
US domestic mill demand and historic corrugated box demand vs tight supplies hiked up pricing the past 11 months, and while US mill demand stuck into October, the “panic buying” has subsided, according to contacts.
The “poaching” of bulk grade tons seen all summer – mills in the Midwest buying OCC in the Southeast, as one example – also slowed this month. Most OCC-consuming mills in October held healthy inventories, contacts said.
Downtime, too, dented demand.
Green Bay Packaging, International Paper, and WestRock took some downtime in September that shifted OCC tons to other buyers. Integrated mills that had been internalizing their DLK this year pushed tons onto the market, adding some supply. These DLK tons were welcomed by insulators and other major buyers of sorted clean news (SCN) that have replaced the lack of groundwood grades supply with some brown grades, including switching to DLK from SCN this year.
“Because of the shortage of SCN, we are looking at alternative fibers and having to use different types of material just to keep the plants running,” a buyer said.
Graphic Kalamazoo said to have tons
Stocking up tons for a major startup also stopped, according to multiple contacts. Graphic Packaging is to start up on Nov. 1 its new $600 million, 500,000 tons per year coated recycled board (CRB) machine at the company’s mill in Kalamazoo, MI. When fully ramped up in 2022, the new machine is expected to annually recycle and consume about 500,000 tons of secondary fiber into about 500,000 tons of new, finished CRB roll-stock. Multiple contacts said the mill had stored enough OCC, box cuttings, and high grades for the November 1 run.
Still, supply concerns kept material moving across the USA. Sellers told of having backup buyers for any bulk grades this month, save for the West Coast, where extra OCC tons were left without homes.
OCC pricing held in most US regions in October. It fell on the West Coast by $10 per ton at the FOB seller’s dock in Los Angeles and San Francisco, and by $5 per ton in the Pacific Northwest.
Risk of price surge still looms
Multiple sellers also told of setting up long-term contracts, up to three years, to lock in prices. One OCC supplier in the Midwest told of confirming three-year contracts with OCC premiums up to $35 per ton. In the last 25 years, US OCC premiums for tons sold to domestic mills have been almost exclusively at $10-15/ton.
“That’s crazy,” the seller said of the OCC premium. “I just think it’s because of the long-term mill capacity over the next three to five years. … The generators aren’t keeping up with the mills.”
Several contacts said this forthcoming capacity in the USA is top-of-mind, and supply concerns remain. Capacity additions from 2022 to year end 2023 appear to total 3.1 million tons per year, based on P&PW research. Of the 3.1 million, 2.397 million is announced to be capacity with 100% recovered paper furnish. These six capacity-addition projects are to start up from second-quarter 2022 through the end of 2023. Five are in the USA and one in Canada.
It is this additional capacity that Fastmarkets RISI’s Director of North American Graphic Paper and Packaging Derek Mahlburg said could increase containerboard inventory at box plants, and therefore demand for OCC. Mahlburg presented at the 36th annual Fastmarkets RISI North American Forest Products Conference in Boston September 27-29, and warned that there remains “big-big risk” from the surge in OCC prices.
Globally, the recycled share of containerboard capacity is to grow, too, Fastmarkets RISI’s Economist for Recovered Paper Hannah Zhao said at the North American Conference. Zhao said the recycled share of containerboard is to increase from 77% in 2020 to 78% by 2023. This increase is to keep OCC markets tight globally, she said.
In the USA, demand for OCC is apparent. OCC’s premium was $30-40 per ton in most trades in October, according to contacts, with a few reporting premiums in the $50-70 per ton range. Premiums for OCC first reached $70 per ton in August, and this high premium stuck through to September, with fewer yet still some trades in October maintaining it.
Premiums stuck for SCN, too. Tight supply for SCN has buyers trying other recovered fiber grades in their furnish to keep machines running, including DLK and some high grades.
“Even the non-traditional consumers are using (high deinking grades) as well, the white ledgers especially,” a contact with plants in the Midwest said. “Molded pulp folks are looking at ledgers, insulators are looking at it and making it happen because they can’t find enough of the groundwood.”
Lastly, the pull for tons trading on export also added to steady demand this month.
Export OCC holds
Pricing held for export No. 11 OCC and No. 12 double-sorted old corrugated containers (DSOCC) as India’s demand was prevalent in October, but pricing from Southeast Asian countries did not rise, according to contacts.
Mills in Mexico and Canada continued to seek US tons, with Mexico paying a hefty premium to rail and truck OCC tons South of the border. Contacts said Grupo Gondi’s demand for US OCC in October remained as it has for much of this year.
Pricing out of the New York/New Jersey ports remained at a high side of $235 per tonne for No. 11 OCC, at a high side of $250 per tonne for No. 12 DSOCC, and out of the Los Angeles/Long Beach ports held at a high side of $225 per tonne for No. 11 OCC, and $240 per tonne for No. 12.
Mexico, too, had some demand for deinking grades. India’s upped demand helped to hike up sorted office paper (SOP) pricing on export off the East Coast. This demand bumped up SOP’s New York/New Jersey pricing by $10 per tonne FAS to a high side of $270 per tonne.
In China, where Southeast Asian countries are shipping tons, energy-saving efforts at plants see some slowdowns in production across multiple sectors, including packaging.
“The average downtime is about five to seven days at this moment,” a major exporter told P&PW. “We don’t know how long this will last. The downtime will impact the package demand market in China.”
Transportation continues to affect movement of tons, too, according to contacts. Pandemic-caused backlogs and increased freight rates – on the waters and on the roads – remain. Another fuel surcharge adds yet another price hike, contacts said.
“It seems like there’s no relief,” a major exporter in California said. “Ships just keep coming in. One ship after another is delayed. It’s a challenge.”
The market is in flux - Get a clear picture of the supply chain
Join us for the Fastmarkets International Containerboard Conference November 8-10th, either in person in Chicago or virtually. Hannah Zhao will discuss her complete global recovered paper forecast, including perspective on the impact of e-commerce on OCC demand and shifting trade flows. You can also hear from big industry names like Klabin, Smurfit Kappa, Saica, Domtar and more. Learn more here.