Recovered paper inventories fill up at domestic mills

As the fall season continues, domestic paper mills are maintaining their strong run to meet the global need for containerboard and packaging. In late October, many paper mills—including Sonoco, Graphic Packaging International and International Paper—said they expect to see strong seasonal demand for corrugated packaging for the remainder of this year.

While domestic paper mills were running well in early November, mills in Southeast Asia were taking downtime. Therefore, export demand for recovered paper—particularly from Southeast Asia—remained slow in the November buying period. As a result, more material recovery facility (MRF) operators, paper packers and traders of recovered paper were trying to sell their tons to domestic consumers rather than to overseas buyers.

With more tons of recovered paper being sold stateside, some domestic paper mills have full recovered paper inventories this fall.

“Paper mills are running very well,” a buyer based in the South says. “If they weren’t running well, they would be overflooded with supply.”

She adds that many of the tons that previously had gone to export markets are staying in the U.S., which is part of why mills’ recovered paper supplies appear to be high as of early November. “Most mills are full inventorywise,” the buyer says. “We have the highest inventories right now than we’ve had in 10 months. We do not foresee any problem keeping supply over the holiday season.”

A MRF operator based in the Midwest says the mills that he sells to “aren’t screaming for tons” as of November.

“Mills are pretty well-saturated,” he says. “Usually, this time of year, they ask for extra tons to get through Thanksgiving, but nobody is asking for that.”

Domestic and export prices for most recovered paper grades declined in the November buying period because of the high inventories at domestic mills and lower export demand.

Throughout the summer and first half of fall, paper mills paid higher premiums to secure recovered paper, particularly old corrugated containers (OCC). But recyclers and brokers say these premiums will start to decline or disappear as prices go down and demand softens.

“Pricing is starting to drop,” the MRF operator says. “Premiums are coming off. All of these guys who said they got $75 premiums aren’t seeing that anymore. They’re back in the $30 to $40 range.”

He adds that he thinks pricing for OCC and mixed paper likely will continue to decline for the next six months as soft export demand likely will continue for a while. “We’ll probably see [OCC] at $100 before the end of the second quarter [of 2022]. Mixed will follow suit and might go back to $35 to $40.”

On the flip side, prices for tissue grades, such as sorted office paper (SOP), rose slightly in the November buying period. Generation of SOP has been a little lower than average this year with commercial shredding business slowly returning. Representatives from document destruction firms Recycling Today spoke with earlier this fall said generation of SOP has improved this year compared with 2020 but has not quite reached prepandemic levels. This, they say, has pushed prices up for tissue grades this fall.

Although paper mills in Southeast Asia aren’t demanding recovered paper, a buyer for a mill in India says that market “started to pick up again” in October. His mill consumes mostly mixed paper, old newspaper (ONP) and SOP. He says demand had been slower in the summer because some businesses and schools were not open and the nation still faced problems related to COVID-19 and logistics. But for the past month, he says businesses and schools were reopening, boosting demand for packaging as well as printing and writing paper in India.

“We have a steady demand, but not a crazy demand,” he says.

The buyer for the Indian mill adds that it has become more difficult for him to secure ONP, with less of this grade being generated globally as more newspapers go out of business. As a result, he says he suspects his mill will look to alternative supply sources, such as mixed paper or old magazines.

Transportation also remained challenging in November, and costs continued to rise.

“We’ve seen transportation costs go up,” the mill buyer based in the South says. “Gas prices are going up, diesel is going up, everything is going up. I do see [trucking] opening up somewhat, but again, it’s still a challenge.”

The buyer for the Indian mill adds that securing shipping containers has been a persistent issue for most of this year. He says “challenging” is the only word he would use to describe logistics.

“It’s very challenging to get containers, it’s challenging to get bookings and it’s challenging to get trucking,” he says. “We might have good bookings, but then sometimes you can’t get the truckers because truckers are in high demand.”

With the challenges related to securing trucking, he adds that he suspects domestic paper mills may start relying on rail rather than trucking where possible. “If you have rail and can get things on rail, that could be king. That’s just my opinion, but I think we’ll see more dependence on rail in order to rely on trucks less.”