China will be back, Sonoco says; another OCC drop expected in May

With more containerboard production capacity soon to come online in China, that nation is going to have to strengthen its buying of old corrugated (OCC) and other recovered paper, said Rob Tiede, president and CEO of Sonoco.

Speaking this morning at the company’s first quarter earnings call, Tiede said Sonoco anticipates a $5 to $10 per ton drop in domestic OCC prices in May, with some upward movement coming around July.

Responding to a question about how Chinese mills are getting fiber to run, Tiede said, “I think about the thirst of those new (Chinese) machines that are going in and the magnitude of input that has to go in there and I have to believe that over a period of time we’re going to see them come back into the market place. I can’t get my head wrapped around how they are not going to do that.”

Regarding the price of OCC, Tiede said Sonoco anticipates another drop of at least $5 to $10 per ton in May.

“We don’t anticipate upward movement in the OCC price until the third quarter,” Tiede said. “I don’t know that it will be significant. The next release of (Chinese) import permits comes in June, so I expect to see some form of increase starting in July.”

For its part, Sonoco is making substantial mill investments, some of which should allow the company to utilize lower grades of paper, including loose paper.

“We have made a strategic decision to invest $60 to $70 million into our mill system,” Tiede said. “From a a holistic standpoint, there is going to be a three-year journey as we go through the paper mill system here in North America. So we are investing in our best of class machines. It’s how do we optimize our mill system and how do we bring in lower cost materials along the way.”