This article appeared in the January 2022 issue of Resource Recycling. Subscribe today for access to all print content.
Over the past 18 months, recycled fiber prices have gone through an extremely volatile period, with a big runup in pricing tied to pandemic consumption patterns and other factors. As 2021 came to a close, pricing began to cool, however.
So what can be expected this year?
No one has a definitive answer, of course, but some key insights can be gleaned from quarterly and annual reports recently issued by paper giants in North America and across the world. In general, companies expect to continue to pay high prices for OCC and other recycled grades. But they also pointed to unknowns in the wider shipping sector and the evolution of the pandemic.
Meanwhile, China-based Nine Dragons is gearing up for market shifts as higher volumes of lower-quality fiber loads are recovered in the world’s most-populous country.
‘No cost relief’
The largest publicly traded paper companies that use recovered fiber as feedstock in North America reported their quarterly earnings during late autumn. During conference calls, they described the current and anticipated OCC market conditions.
One major paper company reported a 179% increase in OCC prices year over year from the third quarter of 2020 to the third quarter of 2021. Although the OCC market has cooled slightly since then, paper companies are projecting similarly elevated prices for the year to come.
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 paid by the company closed out 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. By December, OCC’s national average had fallen to $142 per ton.
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 entered the final quarter of 2021 assuming OCC prices will average around $180 per ton, said Roger Schrum, vice president of investor relations and corporate affairs.
Material more readily available for mills
Meanwhile, 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 as well as many 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.” He added the company anticipates such disruptions will continue for the “foreseeable future.”
As for recovered fiber grades other than OCC, 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.
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.
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.
Shifts in Chinese paper sector
Nine Dragons, China’s largest paper producer and among the largest in the world, in late October reported on its 2020-2021 fiscal year, which ended June 30. As a major consumer of recovered fiber operating primarily in China, the company has been heavily impacted by China’s changing import policies for scrap materials in recent years.
China banned mixed paper imports in 2018 and enacted new quality requirements for imports of other recovered fiber grades. Then, at the beginning of 2021, the country implemented a ban on all “solid waste” imports, a category that covers what the U.S. recycling industry would term recyclables. That includes OCC and other fiber grades.
U.S. recovered paper exports to China – once a major source of feedstock for Nine Dragons’ Chinese paper mills – have dried up in the wake of those restrictions. In the annual Nine Dragons report, which is the first the company has issued since the 2021 ban took hold, the paper giant described how the latest restrictions impacted its operations and how the business responded.
“In the second half of the year, recovered paper as raw material was in short supply and both commodity prices and shipping costs surged drastically as a result of the official implementation of the ‘zero import quota on recovered paper’ policy, while environmental policies tightened,” wrote Cheung Yan, head of Nine Dragons, in a letter introducing the report. “As such, the manufacturing industry in general and China’s packaging paper industry were confronted with huge challenges and tests.”
As one response, Nine Dragons has “increased the ratio of domestic recovered paper used in the manufacturing process to fill the gap of imported recovered paper.” The company reported confidence that it will be able to “acquire sufficient domestic recovered paper,” the report added.
However, the company noted that, in general, “domestic recovered paper has a higher level of impurity as compared to imported recovered paper,” which means Nine Dragons will also be building up its global network of pulp mills to “replenish the reserve of high-quality raw materials.”
That pulp production strategy from Nine Dragons can be seen in the company’s four U.S. mills, facilities the company acquired in the years since China’s fiber import restrictions began to take hold.
These mills – located in Biron, Wis.; Fairmont, W.Va.; Old Town, Maine; and Rumford, Maine – all include some amount of recycled fiber processing capacity.
According to company figures, annually the Fairmont mill produces 240,000 short tons of recycled pulp, and the Old Town facility produces 73,000 short tons of recycled pulp. The report noted that the company’s U.S. pulp mills account for 6.9% of the company’s overall total annual production capacity.
The growing reliance on Chinese domestic recovered paper is also leading the company to expand its product line, adding products, such as a new type of linerboard, that can be made with the lower-quality fiber.
Across the entire company, Nine Dragons estimated it recycled more than 16.5 million short tons of recovered fiber during the 12 months ending June 30.
Colin Staub was the staff reporter for Resource Recycling until the end of 2021. He is now staff reporter at the Northwest Labor Press.
This article appeared in the January 2022 issue of Resource Recycling. Subscribe today for access to all print content.