Prices for European brown paper for recycling grades remain largely steady in final month of 2022

Exports to Asia to meet the surge in demand had helped to push up prices, but what does 2023 hold?

December had a relatively quiet end of the year in store for the European paper for recycling (PfR) market. Following continuous occ price increases for all grades throughout the first half of 2022 and the drastic turnaround for the brown grades in August that began to affect the deinking and medium grades the following month as well, the phase of price stabilization that began in November continued in the final month of the year.

According to market insiders, prices for the bulk grades sorted mixed paper and board, supermarket corrugated paper and board and old corrugated containers (OCC) were largely unchanged month on month in December. Some contacts even reported small upticks here and there for supermarket corrugated paper and board and OCC as a result of very favorable export prices and high demand from customers in southeast Asia. In the UK, the December hikes reportedly reached up to £20/tonne in some cases.

“Following the drastic price decreases in August, September and October, prices [for the bulk grades] started to level out in November and this was also the case in December,” a contact said, and several of his industry peers shared this view. However, they also noted that domestic demand in Europe was still sluggish and that the price stability was first and foremost due to exports.

Exports will diminish in the second half of December and then we will face massive downtime in the packaging sector [in Europe] plus a sharp rise in collection levels during the Christmas period. Let’s see where this will take the market.

As for the deinking and medium grades, most industry insiders said in December that prices were largely steady month on month. The same was true for the high grades, although some contacts started to report rising pressure on prices from the tissue sector.

“Regarding the high grades, the market eased a little for the lower qualities, the ones close to the deinking grades. Here, the decreases for the brown grades and low demand from paper mills affected deinking prices, and in the end, the development affected the lower range of the high grades,” a market insider reported.

“These grades saw decreases of Euro 20-30/tonne in October and additional price cuts of some Euro 20/tonne in November. But now the market has stabilized again, mainly due to a lack of supply, and prices have not moved in December,” he added, also noting that prices for the pulp substitutes did not move at all in the final quarter of 2022.

Exports help brown grade sector

After low demand due to production stoppages at several paper mills across Europe, relatively high inventories on both sides of the market and weak exports were among the main reasons that caused prices for the bulk grades to nosedive from August to October. Market insiders reported already back then that rebounding exports helped avoid a complete market collapse in Europe.

“Asian buyers have been very active in the market again since September, purchasing very big volumes. Containers to Asia are not an issue and it is easy to move material to Asia again,” a contact said in late October, and others shared this view. “India is again ordering larger quantities, and other countries in the Far East are also more active again,” one of them noted.

This development continued in November and the first half of December, which was a surprise for some market insiders. “With the economic problems in China and slowing demand there, nobody could have anticipated this surge in Asian demand,” one of them commented.

However, the European market also benefited from reduced PfR supply. “It is impossible to collect the paper and packaging products that have not been produced and consumed, so collection volumes have decreased considerably from October,” a market player noted.

This, in turn, helped drive up export prices. According to market insiders, export prices increased by around Euro 40/tonne from mid-September to mid-December, taking the gap between domestic and export prices to more than Euro 50/tonne.

“At the end of September, market players [in Europe] were really worried that the market would collapse, but exports and limited supply helped balance the situation. The October price cuts were already much smaller than in the previous months, and in November the market found a strong balance,” a contact said. He added that despite the extended shutdowns planned at almost all domestic paper mills in Europe, the market quickly agreed on price stability at the beginning of December, as collection volumes continued to be on the low side, while the export business continued to be very lively.

However, this changed in mid-December when customers in India and southeast Asia started to retreat from the European market, leaving doubts over developments in the second half of the month and early 2023.

Asian factor will be key

“By mid-December, Asian demand started to ease. Buyers there were asking for much lower volumes and stopped their aggressive pricing policy. All in all, we have already seen price reductions of around Euro 20/tonne,” a contact said in the week before Christmas, and several of his industry peers confirmed this information.

“The export market is on hold. After silence in India, which we already faced last week, the appetite among buyers in southeast Asia has also diminished and prices are already some Euro 20/tonne lower than a week ago,” one of them said. “With a lot of downtime announced by packaging paper producers, local outlets for the low grades will be somewhat limited. For merchants who still have export orders to load, this will not be a problem, but others may have to deal with inventory build-up, and it remains to be seen what the market situation will look like after the turn of the year,” he added.

“The retreat of Asian demand is causing some doubts about how the market will evolve in January. The development will very much depend on the quantities acquired by Asian buyers,” another contact explained. “Although collection volumes will be lower than in previous years, the Christmas season marks the peak in collection during the year and this can increase supply temporarily. Demand from domestic mills is not expected to recover, so the ‘Asian factor’ will be key to knowing if the market will still be balanced or if there will be a surplus of material,” he added.

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