Paper end users reflect on 2021 OCC price runup

One major paper company reported a 179% increase in OCC prices year over year during the third quarter. Although the OCC market has cooled slightly since then, paper companies are projecting similarly elevated prices for the year to come.

The largest publicly traded paper companies that use recovered fiber as feedstock reported their quarterly earnings in the last several weeks. During conference calls, they described the current and anticipated OCC market conditions.

They also touched on the global supply chain disruptions at ports, and one company offered an update on a mill conversion that will use recovered fiber.

Fiber prices impacted by demand and supply chain disruptions

Every paper producer said the rise in recovered fiber bale prices contributed to an increase in operating costs in the financial quarter.

Tim Nicholls, chief financial officer for International Paper, said the company expects demand for OCC to remain strong. He added the company anticipates “no cost relief even as generation gradually improves.” The Memphis, Tenn.-based company, which is the largest paper firm in North America, uses 35% OCC and 65% virgin fiber in its North American fiber packaging, Nicholls said.

Ward Dickson, chief financial officer at Atlanta-based WestRock, spoke to the fluctuations in OCC pricing throughout the company’s 2021 fiscal year (which ended Sept. 30). He noted that OCC prices exited the fiscal year $80 per ton higher than the average price for the entire year.

Pricing data from RecyclingMarkets.net reflects that marked increase. The national average price for OCC hit $171 per ton in September, up from $60 per ton one year earlier. OCC has only modestly declined to $160 per ton since September.

WestRock, which uses about 35% recycled and 65% virgin fiber across its fiber products, is entering the 2022 fiscal year assuming prices will remain elevated. Dickson said the company assumes an average of $166 per ton for the 2022 fiscal year, declining slightly from $175 to start the year down to $160 by the end.

Hartsville, S.C.-headquartered Sonoco Products echoed similar price movement in recent months, leading to a forecast for elevated prices. Julie Albrecht, chief financial officer, described how OCC prices in the southeast increased from $125 per ton in June to $195 per ton in September.

The company began its current quarter in early October, and it entered the period assuming OCC prices will average around $180 per ton, said Roger Schrum, vice president of investor relations and corporate affairs.

Packaging giant Cascades saw OCC prices increase by 179% year over year in the quarter ending Sept. 30, said Mario Plourde, president and CEO of the Kingsey Falls, Quebec-based firm.

“As has been the case throughout the year, this reflects elevated domestic demand driven by strong containerboard industry production levels,” he said. Still, Plourde noted that OCC prices began to ease early in the fall.

“We would describe the market for OCC today as being more favorable for [the] buyer, and material is readily available,” he said. “Our inventories are solid and we are being proactive ahead of the upcoming holiday season.”

He cited rising generation of the material and constrained exports because of the supply chain disruption at ports around the world. The port disruptions are impacting paper companies similarly to other business sectors. Nicholls of International Paper said shipments of his company’s products “continue to be negatively impacted by unprecedented port congestion and vessel delays,” and that the company anticipates such disruptions will continue for the “foreseeable future.”

As for other recovered fiber grades, Plourde noted the average price for white paper grades increased 23% year over year in the quarter. Demand for these grades has increased alongside growing tissue production of late, Plourde said.

“When combined with neutral fiber generation due to the ongoing limited office building activity, this has led to tight market conditions and higher prices in recent months,” he said.

Mill to open late in 2022

Cascades also reported on its Bear Island, Va. mill conversion project, which is turning an old newsprint mill into a containerboard mill. This project was first announced in 2018 and Cascades offered an update last fall.

During the recent earnings call, company officials said the cost of the conversion has been revised and is lower than initially anticipated. Cascades currently anticipates a budget of $125 million. In October 2020, Cascades estimated it would cost $380 million.

The conversion is planned to be complete in December 2022, and company officials project a 2023 output of 309,000 short tons. The facility will use OCC and mixed paper.

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