US OCC prices hit a four-year high

By: Megan Workman, price reporter, Fastmarkets Forest Products

For the third consecutive month, US recovered paper pricing has increased in every domestic region for all grades. High demand and low supply shot up old corrugated container (OCC) pricing by $40 per ton at the FOB seller’s dock in the South. The August rise is the 10th month in a row for US OCC pricing hikes in North America. It is the eighth straight month of increases for high deinking grades and pulp substitutes.

OCC’s national average, at $159 per ton at the FOB seller’s dock in August, is at its highest pricing point in four years. This month marks the seventh month in four years that OCC’s US average has surpassed $100 per ton, and the third month in a row since July’s $129 per ton and June’s $109 per ton.
Average pricing for OCC in August has increased $30 per ton compared with July’s $129 per ton. It is up 174% compared to August 2020.While all US mills continue to have demand for bulk grades. According to Fastmarkets sources, one of the largest consumers of recovered fiber sought tons off both US coasts for its mills in the US interior. This action competes with the export market to keep tons domestic.

Premiums for OCC have nearly doubled month-over-month in some trades, at $60-70 per ton, with $100 spot premiums on top of the listed price as well. This is dramatically above what typically had been $10-20 premiums in the domestic North American market over the past 10 to 15 years.
In addition to major US mills seeking OCC tons, sources said mills in Mexico were pulling tons from the US Midwest via truck and paying premiums, up to $40 per ton. Typically, Mexico buys almost exclusively from Texas.

Several major mill contacts that produce containerboard reported they are struggling to keep up with corrugated box demand. This box demand began a historic run in June 2020 during the pandemic. Demand will continue to be historically high due to record shipments and the influence of e-commerce.

Box demand is driving DLK prices up too

DLK (new double-lined kraft corrugated cuttings) pricing has hiked up even more than OCC due to tightness in supply and upped demand. The integrated mills like IP and WestRock have been internalizing their DLK this summer, as lack of supply has become apparent, our contacts said. With additional buyers like insulators, who continue to come up short on old newspaper supplies, seeking DLK tons, demand outweighs supplies today.

IP and WestRock are the two largest containerboard producers in North America. Their combined containerboard capacity is nearly 55% of total US containerboard capacity. US containerboard production this year is on track to almost 40 million tons.

DLK’s US average pricing, at $174 per ton, is at its highest average in four years. In August 2017, DLK averaged $177 per ton, and hasn’t seen the $170-ton range since. Pricing for DLK this year is on a 10-month run-up, like OCC.

Multiple contacts said the spread between OCC and DLK widened with this tightness. Our reports indicate the spread between OCC and DLK widened in every US region.

Mixed paper hits second-highest average ever

This demand for bulk grades has affected mixed paper as well. Many contacts told of additional mills buying mixed paper in August that cannot secure enough OCC. Georgia-Pacific was one major mill that had more demand for mixed this month due to tight OCC supplies.

At $94 per ton in August, mixed paper’s US average hit its second-highest average ever (second only to $96 per ton in March 2017). March 2017 was the only month mixed paper’s average has ever topped $90 or more prior to this August’s $94 per ton average.

A lot can change in a year. Interest in mixed paper has increased along with the additional OCC in packs. Mixed paper is browner because of increased e-commerce sales and and more people working and shopping from home in the last year due to the pandemic.

Multiple recycling plant and mill contacts say they have invested in equipment to better process mixed paper.

Mixed paper quality is a concern this summer. This has mostly been driven by a labor shortage at material recovery facilities (MRFs), according to contacts. One major MRF contact said this week that, in one state, it is short 80 drivers, affecting collections, and that mixed paper loads have been rejected due to quality. With fewer sorters on the line, contacts said mixed paper quality admittedly has suffered in some cases.

Yet, one contact said they are investing in new optical sorting equipment that will help them avoid labor shortage challenges and will create a cleaner mixed pack. The contact said the investment has increased its sale price of the plant’s mixed paper by more than two-times what it sold mixed paper for prior to new equipment.

No matter the grade, sellers told our Fastmarkets reporters they cannot find enough material to fill orders.
“I’m short on everything,” said a major seller in the Midwest. “We try to get our suppliers to ship what they normally ship, but they don’t have what they normally ship. There’s people selling off to another mill for an extra $15-20.”

Export pricing is up and transportation remains a struggle

All recovered fiber pricing increased on the export side as India holds off on some buying from the US in August while buyers in Southeast Asia, Europe, Mexico, Canada, and Central America continue to secure tons. India has become the pricing leader in 2021 since China’s ban on global recovered fiber took effect in January 2021. Buyers in India purposefully avoided buying US tons at the start of this month to avoid additional pricing hikes.

August bulk grades are up $5 per (metric) tonne off the US East Coast. India predominantly buys tons from US East Coast ports, and its curtailed demand again tightened the spread between the US coasts. Because China’s waste paper ban now in effect – and China historically pulled a majority of tons off the US West Coast – pricing for the West Coast vs East Coast flipped this year.

US OCC pricing increased by $10 per tonne for No. 11 US OCC to a high of $230 per tonne FAS out of the New York/New Jersey ports, and to a high of $225 per tonne FAS at the Long Beach/Los Angeles ports. No. 12 double-sorted OCC (DSOCC) rose by $10-15 per tonne out of the New York/New Jersey ports to a high side of $245 per tonne FAS, and to a high of $240 pe tonne FAS at the Long Beach/Los Angeles ports.

“Indian mills are having a hard time justifying buying at current levels,” a major seller said to Fastmarkets reporters in August. “Indian mills are resisting current prices and are waiting for signs if the market/prices may have peaked. While we are able to sell OCC No. 11 at $305-$310 and DSOCC No. 12 at $320-$330, volumes are reduced.”

FAS pricing for DSOCC is up $75 per tonne since January from the US East Coast, and up $80 per tonne off the US West Coast.
Land and sea transportation challenges both continue to affect recovered fiber movement and add fuel and freight costs. Exporters said limited bookings and struggles at ports remain.

The Covid-19 pandemic’s Delta variant is also adding challenges at ports. “The problem is not so much at the production facility where mills have some control such as distancing and controlling the shifts separation, but it is more about transportation,” a major recovered paper buyer said. “We are changing our loading speed because we might have too many containers stuck at port upon arrival. That can be very costly.”

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Originally published in Fastmarkets Forest Products PPI Pulp & Paper Week. This article has been amended for brevity.