An economic slowdown in China has rippled upstream to the U.S. recovered fiber market, driving stagnation in OCC prices. | Siwakorn1933/Shutterstock
U.S. demand for recovered fiber is healthy and will continue to grow in the near future. But prices have plateaued or dipped of late, as domestic fiber supply has caught up and China’s economic slowdown has reduced overseas demand.
Those were some takeaways from a recent presentation by Megan Workman and Hannah Zhao, two recovered-fiber market experts from research and price index firm Fastmarkets. Zhao and Workman spoke during “Recovered paper outlook for the North American market,” a Sept. 10 presentation moderated by Matt Graves of Fastmarkets.
Why prices have flatlined
U.S. OCC prices climbed up throughout the latter half of 2023 and this year before stabilizing over the summer and recently dipping slightly. That has come despite U.S. domestic demand for OCC remaining healthy, said Zhao, director of fiber at Fastmarkets.
The recent stagnation is partially due to weak Asian demand, Zhao said, including in Southeast Asia and China. A weak Chinese economy slowed the region’s paper packaging sector, which in turn weakened the demand for recovered fiber including material shipped from the U.S.
That economic weakness continues, with China’s latest economic data released over the weekend indicating retail sales grew slower in August than analysts had forecast.
In the U.S., the recycled fiber mill capacity expansions over the past year and a half have been “the fundamental factor behind the strong U.S. OCC market” during that time, Zhao said. But as the new capacity started up, demand normalized, Zhao said, also contributing to the flatlining prices this past summer. OCC inventories at mills began to inch up in recent months.
“The supply side slowly caught up,” she said.
Domestically, box shipments are the major indicator of OCC supply, and these fell sharply throughout 2022 and remained low in 2023, all tied to pandemic trends, Zhao said. They increased slightly during the first half of 2024 but have remained “quite low,” she said.
Imported consumer goods contribute the other major supply of U.S. OCC, as imports largely come in corrugated boxes that are then collected in the U.S. Zhao showed data from the U.S. Bureau of Economic Analysis indicating imports were down throughout 2023 but have increased by about 3% this year.
“If we combine the domestic and the external source together, we would say that U.S. OCC supply was very tight last year, it improved slightly recently but is still at relatively low levels,” Zhao said, adding that is “exactly consistent with what we saw in the U.S. OCC price.”
New capacity ‘not going away any time soon’
Major paper packaging firms have seen a flurry of recent acquisition activity, bringing several impacts for recovered fiber, said Workman, price reporter at Fastmarkets.
Europe’s largest paper producer, Smurfit Kappa, acquired North America’s second largest, WestRock, in an $11 billion deal over the summer, forming Smurfit Westrock, North America’s new second largest paper producer. The largest, International Paper, is in talks to acquire Europe’s second largest, DS Smith, for $7 billion.
Workman noted that the merged companies will likely begin shutting down older mills and replacing them with facilities with new equipment. She pointed to four WestRock containerboard mill closures that occurred even before that merger was complete.
“As they close older machines, these newer machines are able to process and take in that mixed paper that years ago the older machines weren’t able to,” Workman said.
She said Fastmarkets has tallied five new paper machines that have started up since January 2023, bringing 2.4 million tons per year of additional 100% recycled containerboard capacity to the North American market. In some cases, Workman added, those recycled fiber mills are replacing virgin mills that closed down.
Workman cited recent figures from the American Forest & Paper Association indicating that in the first half of 2024, U.S. paper mills consumed 16.44 million tons of recovered fiber, which is 1 million tons more than they did during that period in 2023. OCC and mixed paper made up the majority of that volume, Workman said.
And growth in recovered fiber capacity is not over yet: Graphic Packaging is planning to open its newest mill in Waco, Texas, in 2025 or 2026. That facility has a planned capacity of 550,000 tons per year of recycled paperboard, and although the company is closing some older mills concurrently, the mill includes 200,000 tons of net new capacity.
Taken as a whole, these signs create a positive outlook for recovered fiber demand, Workman said.
“It’s not going away any time soon; actually it’s only going to continue to grow,” Workman said.
Artificial intelligence in the mixed paper market
In one interesting twist, new technology has both increased mills’ ability to take in mixed paper and constrained the supply of that same grade. While the latest paper machines can handle lower grades of fiber, MRFs are increasingly able to sort mixed paper out into higher grades, which fetch higher bale prices.
Workman gave the example of WM, the largest hauler and MRF operator in North America, which has been producing fewer bales of mixed paper and more bales of the higher-value OCC.
“And how are they able to do that? They’re doing it through AI,” she said.
AI imaging systems are being paired with traditional air-jet optical sorters to better identify and sort material on the conveyor line. This configuration is increasingly seen in MRFs, including the high-profile facility Rumpke recently opened in Columbus, Ohio. Rumpke has 19 optical sorters, nine of which are paired with AI imaging systems identifying materials based on shape, color and size. That’s compared with the traditional near-infrared technology, which identifies plastic based on its wavelength.
These systems have allowed better OCC identification, and they’ve even enabled new bale types. Workman described a “high-quality sorted office paper” bale WM is creating at some of its MRFs.
Sorted office paper is not a grade traditionally associated with MRFs, instead often generated by separate collection from offices or at paper packing facilities that only handle fiber. But technology is enabling new opportunities.
“With more workers working from home, they have more white grades going into these MRFs, and they actually are sorting them out, selling them, and they have found mill buyers willing to take this high-quality sorted office paper coming out of recycling facilities,” Workman said. “I think if you told anybody that 10 years ago they wouldn’t have believed you at all, but that’s where we are.”