The Market: Traders concerned about containerboard business

By Ken McEntee

Scrap paper traders who anticipated that the end of the Lunar New Year would bring markets back to life began to reconsider projections of upward price movement by the end of February. Many traders expected to see a surge in Chinese orders in mid-January, timed to arrive at the port in time for business as usual after February 11.

When that didn’t happen, many traders hoped to see a spike in Asian activity during the first week of February.

When that didn’t happen, many traders started to notice that not only were export orders down, but also begin to take note that North American containerboard makers were starting to schedule downtime, while operating rates at those mills were on a steady decline since summer. With a wave of new containerboard capacity scheduled to come online over the next three years, those operating rates have become a concern to people other than Wall Street analysts.

“The market is a mess,” summarized a broker in the Midwest. “All the mills are full and without export coming in there aren’t a lot of options to move OCC (old corrugated containers).”

OCC prices early in the month dropped to their lowest levels since last summer, while mixed paper prices were staying positive mainly in support of mills’ suppliers. Meanwhile, low pulp prices were taking a toll on chemical deinking grades and pulp substitutes.

“The paperboard mill operating rate was down to 94 percent in December after it was near 99 percent for most of the summer,” noted a broker in the Pacific Northwest. “We’re starting to hear about market related downtime for the first time in quite a while. When the integrated mills that can use wood or wastepaper start to cut back, wastepaper is going to be the first to take a hit.”

While declining containerboard demand could signal a weakening economy ahead, the Institute for Supply Management (ISM), offered an optimistic report this month, saying that economic activity in the manufacturing sector expanded in January, and the overall economy grew for the 117th consecutive month.

ISM’s monthly Purchasing Managers Index for the manufacturing sector, a survey of business confidence, registered 56.6 percent In January, an increase of 2.3 percentage points from the December reading of 54.3 percent. However, ISM said raw materials prices dropped for the first time in nearly three years.

“Comments from the panel reflect continued expanding business strength, supported by strong demand and output,” ISM said. “Consumption continued to strengthen, with production expanding strongly and employment continuing to expand at previous-month levels. Exports continue to expand, but at the lowest level since the fourth quarter of 2016.”

Notably, however, a panel respondent from the paper products industry reported, “Unlike in the last few years, we are experiencing a first quarter slowdown.”

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