The Market: Paper recycling entering a ‘dark place’

By Ken McEntee

The recovered paper market, in the words of one broker in the Northeast, has entered a “dark place” that will probably take at least several years to return from.

In the Southeast and Southwest U.S., some mills this month were reportedly too full to accept contract tonnage.

“One big mill group in the Southeast was so full of OCC (old corrugated) – including their recycling plants – that they are selling off tonnage to third parties at $50 per ton,” one broker reported. “They just need to get the stuff off their property.”

A few days later, another broker said, “There are mills with so much inventory that they literally cannot continue to take their own contract tons. The mills themselves are shut down and they have no more room at the mill and they are moving off their contract tons to other people literally for free.”

Meanwhile, on the West Coast, Sacramento County, Calif. in January signed a new contract to pay Recycling Services Inc. a processing fee of $193 per ton to take its curbside recyclables. That’s more than double the processing costs of the parties’ previous long-term contract.

Sacramento County’s collections are made up of about 23 percent mixed paper, 18 percent OCC and about 26 percent residuals, according to the contract.

On the export side, beginning April 1, Indonesia will return to 100 percent inspections of scrap paper shipments bound for that country. Two percent of all bales will be broken open, and checked to be sure impurities don’t exceed 0.5 percent, according to a letter from KSO Sucofindo, which conducts import verification of non-hazardous and non-toxic materials from Europe on behalf of the Indonesian government.

“If a half of 1 percent non papers are found, the shipments will be rejected,” said a Northeast broker. “They don’t have the inspection capability for that either here or in Indonesia, and it will bring the business of mixed paper, news and corrugated to Indonesia to a complete halt because those standards are unachievable, at least for news and mixed paper.”

Last April, Indonesia implemented a 100 percent inspection policy, but has enforced a 10 percent minimum for supervision of stuffing.

The 10 percent stuffing supervision, KSO Sucofindo said, “was declared invalid.”

“Following up on the findings of discrepancies in the importation of waste paper by Indonesian Customs at the port of arrival of Tanjung Emas – Semarang and Tanjung Perak – Surabaya, and while awaiting the issuance of waste paper inspection technical guidelines by the Ministry of Trade, we hereby convey that inspection methods currently applied for waste paper inspection, namely10 percent stuffing supervision, was declared invalid,” the letter said. “The verification of waste paper import will be returned to its original rules, namely by 100 percent stuffing supervision. This provision is the same as the verification rules for the import of other types of non-hazardous waste (steel scrap, plastic, etc.)”

The notice says that adjustments to the policy will be adjusted after the Ministry of Trade issues waste paper inspection technical guidelines, but doesn’t say when that will happen.

“The (Indonesian) government is apparently worried about their people accusing them of allowing the country to become an environmental dumping ground,” the Northeast broker said. “So it’s kind of a knee-jerk thing to copy the Chinese standard of requiring 100 percent inspection first, then inspecting it on arrival and the checking everything to make sure it’s under half of 1 percent contaminants.”

Last year, Indonesia was the fourth largest market for U.S. scrap paper exports, at 1.3 million short tons, and was the second largest market for mixed paper, at almost a half million tons.

Further restriction on export markets are likely to make a bad OCC oversupply situation worse, suppliers agree.

“Containerboard mills are full and they are running at a lower operating rates than last summer (93 percent compared to 99 percent),” said a broker in the Northwest U.S. “There is a lot of market related downtime. When China banned mixed and implemented the 0.5 percent contamination rule, China became a great market for U.S. producers to sell linerboard into. Then it just went to crap. Prices dropped $100 to $150 per ton and the exports to China stopped.”

Throughout most of 2018, recyclers who double-sorted OCC for shipment to China were getting get $50 to $90 more than for No. 11. This month, the margin was only about $20.

“It isn’t worth the effort for $20,” a West Coast broker said. “If you’re in L.A., you have to pay travel expenses for an inspector, plus his hotel and rental car, the $60 per hour and $80 per container for CCIC. If you have a big block of tons in one place, you might be able to get your inspection done for $8 per ton. But if you’re in Salt Lake you have to pay for a flight from Denver or somewhere, you’re looking at maybe $20 per ton, so it’s a wash.”

Earlier in the month, the Northeast U.S. and Eastern Canada region was the only area where OCC showed any sign of life, with some mills seeking additional tonnage, although not at higher prices – in most cases lower than in February. Toward the end of the month, however, demand in that region also dried up as mills like Rand Whitney took downtime.

“Waste paper suppliers are starting to build inventories – in some cases huge inventories, like 10,000 tons, 20,000 tons – at waste paper shops, one broker reported. “That just makes the recovery period for this really long.”

Market related downtime was being taken at many mills in the Eastern U.S. The American Forest & Paper Association reported that U.S. paperboard production in February decreased two percent compared to February 2018 and decreased one percent compared to the same two months of 2018. The operating rate for paperboard down 4.5 points from February 2018 and down 2.2 points the first two months of the year.

With high OCC inventories at mills and recycling plants, and a general consensus that prices are still in the way down, one broker said he was surprised that a New York City area supplier rejected an offer of $60 per ton for a few trailers full of OCC.

“I had an opportunity to move some tons to a mill for $90 delivered,” the broker said. “I had $25 a ton in freight and offered the supplier $60, and he didn’t take the order. I was surprised because I know he had 300 to 400 bales sitting in his plant and there is some certainty that prices aren’t going up next month.”

Another broker in the Northeast remarked that as bad as things are, they could be even worse.

“Traditionally OCC generation is off in February and starts to build in March,” he said. “This year generation is still off, but there is still too much material out there.”

Another broker in the region said he’s taken more orders in February than in January, but prices have been stagnant.

“I really expected a pick-up this month, but it didn’t happen,” he said. “The guys who are going to be hurt the most if this continues are the plant operators. If the market falls into the $50 range for OCC, they won’t be making enough to bale it. If it gets too much lower than it is some of these guys will start to landfill it. Once you start going down that path it’s hard to turn it back on.”

Domestic demand remained relatively steady for over issue news (No. 9), mainly in the Midwest, due to demand from insulators.

“No. 9 prices are better in the Midwest than on the coasts, said a broker on the West Coast. “Export demand is weak for No. 9 because overseas newsprint mills are struggling just like they are here.”

Meanwhile, as mixed paper continued to be routed to landfills, sources reported that Pratt Industries’ Southern mills were having difficulty getting clean mixed paper.

“They are paying some premiums and pulling from some significant distances to get material that is clean enough to run their machines,” one broker said.

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