In the United Arab Emirates (UAE), multiple contacts said there had been discussions about price hikes of $20 per tonne for October, but that some buyers had countered with demands for price cuts. In the end, most sources said prices were unchanged or that only smaller increases were applied.

In Saudi Arabia, market participants painted a more mixed picture containing higher, lower, and stable prices depending on customer and starting point. Similar reports of stability and small movements were heard in the other GCC markets.

All in all, our PIX Testliner GCC index edged up by $2.21 per tonne, or by 0.46%, closing at $481.08 per tonne. PIX Fluting GCC rose by $2.85 per tonne, or by 0.63%, to $456.72 per tonne.

OCC prices remain high, freight costs decrease

The price increases this year have to a large extent been attributed to rising costs. This month, producers said that while local OCC prices have fluctuated a bit recently, they have yet to show any notable decent.

International freight rates, on the other hand, have been dropping. Drewry’s World Container Index fell by 48% between its most recent peak in July and October 24, after which it edged up by 4% to $3,213 per 40-feet container at the end of last week. This is similar to its level in early May, but the index remains some 93% above where it stood at the end of last year.

Contacts described containerboard demand as stable or healthy in Saudi Arabia in October. In the UAE, our sources said demand had improved after the summer slump. However, there was a certain lack of enthusiasm behind the answers, with several contacts adding they had hoped business would be better.

Importers eye the GCC, but tonnage limited

Mills in Malaysia, Indonesia, Taiwan and some European countries have showed an interest in supplying testliner and fluting to GCC-based converters, contacts said, though there was little talk of any sizeable volumes. Several sources specifically mentioned Chinese-owned mills eyeing the region.

Indian producers continue to ship to the UAE, but given high OCC and freight costs, GCC-based contacts have talked relatively little about Indian tonnage these past months.

“There are some imports coming from here and there, but they are not significant in the landscape of competition today,” one contact summarized.

This was also one of the reasons many market participants did not expect much price change for the remainder of the year. In the words of one buyer: “We are fighting for a price reduction, but I know it is very difficult. The local mills are not threatened by any imports.”

The Saudi Arabian corrugating company Al Rabeh Pack is investing in a new factory near its existing plant in Jeddah. The firm will add a 2.5-meter-wide corrugator, with startup scheduled for February-March next year. By the end of 2026, Al Rabeh Pack plans to more than double its capacity to 11,000 tonnes per month.

PIX indices covering the two main recycled fiber-based containerboard grades, produced in and delivered to the GCC, were launched in June 2023. The GCC countries include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE.

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According to market participants, a combination of a stable macroeconomic environment for domestic demand, with a low unemployment rate and a more controlled inflation rate, has brought consumers’ appetites back. At the same time, the depreciation of the Brazilian Real against the US dollar has been supporting agriculture exports that must be packed.

“We also see the market much more balanced this year in terms of supply and demand,” a market source said, “after a big destocking move throughout 2023. Since the beginning of 2024, demand has come back and has been increasing month after month, with an expectation that corrugated box shipments will increase by 5% this year.”

Preliminary data from the Brazilian paper packaging association, Empapel, showed corrugated board shipments in Brazil totaled 353,766 tonnes in September. This is an increase of 2.6% compared to a year earlier and market sources expected another positive figure in October.

“I did not see demand coming down in October, and sales for November are looking good as well,” a second market source said.

A third market participant was also very positive, saying: “My paper machine is full until the end of the year. We are sold out for the fourth quarter.”

Empapel reported that September levels were the second highest in corrugated for the month of September, since the data was first tracked in 2005. The latest figure followed the peak logged in September 2020, which was when the Covid-19 pandemic caused a broad-based surge in corrugated box demand.

With positive demand, containerboard suppliers continue to push for higher prices. These moves started with recycled paper producers but were also reaching the virgin paper market, with a 10% price rise set by the two largest producers, Smurfit WestRock and Klabin.

Fastmarkets has learned from multiple sources that Smurfit WestRock set a price increase for October which it began to apply, while Klabin initially raised prices for narrower widths this month but decided to also impose a price rise for November including all containerboard grades.

“We are not used to seeing price increases for November, when usually the high season is over,” a fourth market source said, “but this year has been different. Demand is allowing the move.”

Fastmarkets’ price survey noted higher prices for recycled grades traded in October. The medium price stood at 3,300-3,800 Reais ($577-667) per tonne, up by 24.6% in an annual comparison.

According to trade sources, prices for old corrugated containers (OCC) were at high levels of 1,050-1,100 Reais per tonne, up by 90% year on year, supporting the negotiations for higher prices.

Negotiations for kraftliner also started to show higher levels when the increases reach the market, at 4,500-4,900 Reais per tonne in October, still 3.1% lower than a year earlier.

Sack kraft prices were 4,900-5,300 Reais per tonne, up by 2% year on year, and at least one trade source said that price increases for this grade were imminent.

Despite the startup of new recycled-grade capacity in Brazil, with a new paper machine from Guapi in September, market sources said that volumes from the equipment were still low and did not affect the current dynamics.

In this scenario, a fifth market source said that it was not impossible for Klabin to rethink its plans to keep its recycled paper operation of Paulínia idle, which has been in that condition since 2022. “There is no official move on that yet, but it is no longer impossible,” the same source added.

What could also boost the Brazilian market is a more active international trade environment, with global demand for virgin containerboard improving and prices recovering.

Brazilian kraftliner exports increased this year by 16% up to September, reaching roughly 322,000 tonnes. Argentina is the main export market, holding 28% of this demand, but volumes of 91,000 tonnes were still down by 3% compared with 2023.

The second-largest market for Brazilian exports is Italy, with sales booming by 53% year on year to 30,000 tonnes.

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A looming strike at ports of US East and Gulf coasts is planned to begin on October 1 and threatens to disrupt US recovered paper (RCP) supply to Asia. The potential shutdown of the US ports could put upward pressure on RCP export prices and drive customers in Southeast Asia and India to turn to European materials.

In addition, the appreciation of the euro and the British pound against the US dollar have inflated costs of the exports of European RCP.

Yet poor demand for packaging materials and recycled pulp in Asia have caused regional mills to slow down production or shut down machines altogether across Southeast Asia. This has resulted in increased availability of domestic collections in Indonesia, Thailand, Vietnam and Taiwan.

A vendor said that local OCC in those markets fell as a result, with the lowest level heard in Thailand at $140 per tonne. Regional mills opted to step up purchases of local brown grades, while slashing OCC imports and pressing down prices.

China-affiliated board mills and recycled plants in Southeast Asia, which usually pay more for the premium US grade, double-sorted OCC (DS OCC 12), cut imports of the grade substantially to cope with low demand for the materials from China.

Imports of recycled pulp in China, mostly from Southeast Asia, plummeted by 37%, or 171,231 tonnes to 288,344 tonnes in August from the recent high of 459,575 tonnes in April, according to China customs data.

Meanwhile, suppliers pointed out that packaging producers in the US and Europe have been taking downtime due to softer demand and OCC prices in those two regions have fallen.

A supplier said that sliding sourcing costs in the US and Europe enabled sellers to cut OCC export prices to accommodate Asian customers’ push for price drops, despite some sellers holding back on offers when prices fell below their desired levels.

Another factor at play is decreases of ocean freight costs for RCP cargoes shipped from the two regions to Southeast Asia and India.

A European supplier indicated that Indian buyers increased European OCC and mixed paper tonnages modestly this month following a shipping cost reduction for RCP cargoes, from $1,200-1,500 per 40-foot container to $700-800 per 40-foot container, compared with an average of $300 per 40-foot container from western Europe to Southeast Asia.

US and Europe OCC dips

As of Thursday September 26, US DS OCC fetched $195-200 per tonne in Vietnam, Thailand, Malaysia and Taiwan, and $10 per tonne more in Indonesia due to required transshipments via Malaysia or Singapore and the country’s implementation of pre-shipment inspections for inbound RCP cargoes at the country of origins.

That represented a decrease of $10 per tonne for the grade from a fortnight ago.

China-based board mills and recycled plants in Vietnam and Malaysia forked out $208-210 per tonne for the premium US OCC grade, compared with $218-225 per tonne assessed two weeks earlier.

Benchmark US OCC slipped accordingly, down $10 per tonne to $190-195 per tonne.

Prices for premium European brown grade, OCC 98/2 dipped by $5 per tonne to $160-165 per tonne, dragging down benchmark European OCC 95/5 from $155-160 per tonne to $150-160 per tonne.

Japanese OCC stayed flat, though, at $180-190 per tonne.

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As a result, our PIX Testliner GCC index rose by 2.46 dollars, or by 0.52%, and settled at 478.87 USD/t. PIX Fluting GCC inched north by 1.53 dollars, or by 0.34%, closing at 453.87 USD/t. 

The UAE sees upswing in demand after summer lull

Containerboard demand was usually described as healthy, by some as very healthy, in the region’s largest market Saudi Arabia in September. In the United Arab Emirates (UAE), demand has picked up after the summer slowdown in July and August. However, some UAE-based sources said they had expected a more solid September upswing.  

Purchasing Managers’ Indices (PMIs) in the non-oil private sector have hovered around 54.4-55.0 in Saudi Arabia and 53.7-54.6 in the UAE in June-August, down from approximately 57.0 for both in February-March. September data is not yet available. 

Costs for old corrugated containers (OCC) have remained at a high level in the region, contacts said, most of them reporting only small price fluctuations in September.  

As for international freight rates, several sources reported noticing a decline. This is backed up by Drewry’s World Container Index, which has dropped by 38% from its most recent peak in mid-July to $3,691 per 40ft container last week. 

Anti-dumping duties expire 

The GCC-wide anti-dumping duties (ADDs) on testliner and fluting originating from Spain and Poland, which went into force on May 1, 2019, have expired after their intended five years. The percentages applied during the period were 24.6% for Spain’s Saica, 31% for other Spanish companies and 34% for Polish firms.  

Contacts said they had not seen any upswing in imports from these two countries since May, which was confirmed by Eurostat data covering May-July.  

Several sources said there had been no application for the ADDs to be extended. “I believe the message was sent clearly. We don’t anticipate that the same suppliers from the same countries would disrespect our markets again. Ours is an open market for fair competition, not for dumping,” an industry contact remarked.

EU exports down to the UAE, up to Saudi Arabia

Total EU exports of testliner and fluting to the UEA have dropped by about 40% year-on-year in January-July, according to Eurostat data. Some corrugators in the UAE said they have been seeing offers for European testliner and fluting but described the prices as uninteresting.  

Testliner and fluting exports from the EU to Saudi Arabia, on the other hand, have risen by some 60% compared to January-July 2023.  

Healthy demand expected in Q4

Looking ahead, contacts expected containerboard demand to be strong in the GCC region in October, November and the first part of December. The latter part of December usually sees a bit of a downturn, as companies optimize their stocks before the end of the year. However, Ramadan starting approximately 10 days earlier next year may limit this slowdown, a few sources speculated. 

As for prices, there was an expectation that producers would try to increase them again for October or the fourth quarter, though the result of this remains to be seen. 

PIX indices covering the two main recycled fiber-based containerboard grades, produced in and delivered to the GCC, were launched in June 2023. The GCC countries include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE. 

If you want to learn more about market trends and price movements, Fastmarkets provide a range of market intelligence, including short-term forecasts, price data and market coverage to keep you one step ahead of the market. Speak to our team and find out more today.

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“This currency issue is the only pressure we are observing at the moment. If demand increases, even slightly, we may experience further price increases as early as October,” a source said.  

Another factor, less mentioned by most market participants but still on the radar, is the merger between Westrock and Smurfit Kappa, which is somehow contributing to reduced product availability.  

“There is high demand and low supply, and we are already beginning to feel the effects of this merger [reducing supply],” a second source said.

Fastmarkets’ price survey detected a 100-peso price increase for domestic recycled testliner and fluting, moving prices to 12,500-12,900 pesos ($653-674) per tonne and 11,500-11,900 pesos per tonne respectively, unchanged compared with a year earlier.

Similarly, the slight increase observed in old corrugated container (OCC) prices also tends to contribute to this increase, according to a third source.  

The latest data from Mexico’s National Institute of Statistics and Geography (INEGI) shows that despite a mild demand scenario in the country this year, the pace of imports remained strong in 2024.  

The country imported 481,191 tonnes of containerboard in the first six months of 2024, 6.6% higher than a year earlier. The largest supplier was the US, with 99% of this total.  

Recycled paper imports were also up 31% in Mexico this year with 222,664 tonnes, increasing by almost 169,987 tonnes from a year earlier.  

According to Fastmarkets Latin American Paper Monitor, there are expectations that demand will slowly resume through the end of 2024, given the recent devaluation of the Mexican peso and the anticipated continuity of this trend in the coming months. 

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Three factors that shaped the first half of 2024 for European paper packaging markets

1. Consumer spending: soft but stable

Consumer spending was soft but stable in the first half of 2024. Slight growth in retail sales volumes suggested minor improvement in consumption growth. However, high inflation and higher living costs have increased the price of goods and services, and consumption mainly focused on necessary items and services. Consequently, funds for additional purchases have and will remain limited. Thus, volumes of goods and services remained stable in the first half of 2024 with no visible boost to volume growth.

Softer growth in the European economy creates concerns about the expected demand recovery in the second half of 2024. The reduction in new orders continued, as did the underperformance in the German and French economies compared with other regions. High input prices and selling price inflation might keep overall inflation higher than the 2% target and further delay the European Central Bank’s (ECB’s) rate cut schedule and thus any packaging paper demand recovery.

2. Stable demand for containerboard and cartonboard amid sector challenges

Despite the lower performance in the manufacturing and service sectors, the consumption of board through the goods and services segments has remained relatively stable. Consequently, demand for containerboard and cartonboard did not grow much in the first half of 2024. Consumer spending is expected to remain limited due to higher living costs, so a significant recovery in demand is unlikely to happen in the near term. Demand conditions improved in the containerboard and cartonboard markets in the first half of 2024 after a difficult 2023. Demand and production levels have stabilized at pre-pandemic levels or lower.

We anticipate market conditions will remain stable in the second half of 2024, as consumers remain cautious, and buyers seek bargains.

3. Manufacturing cost inflation drives prices, squeezes margins

Manufacturing cost inflation continued to be high in the first half of 2024, which pushed prices of containerboard up significantly and cartonboard prices up slightly. Cost inflation softened late in the second quarter but is expected to add pressure to selling prices of both containerboard and cartonboard in the third quarter. Despite the price increases, margins in containerboard and cartonboard markets remain low. Further price increases are likely if manufacturing costs continue to rise; the currently low operating rates will not support additional increases.

Scroll down to discover our outlook for the second half of 2024.

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Looking ahead to the second half of 2024

The poor performance of the European economy in June and July has shaken the business optimism that increased in the first and early second quarters. Both the manufacturing and service sectors are suffering from declining new orders, which could extend past the summer and reduce our demand forecast. Higher living costs have reduced consumer funds and forced them to carefully consider their spending. Inflation remains persistently high and might keep interest rates high longer than currently anticipated. This could slow growth in consumer spending, demand in the manufacturing sector and eventually demand for corrugated board for a longer time than currently expected. However, contraction in the manufacturing sector has lasted two years, so considerable change in demand levels is not expected.

We continue to expect soft demand growth for the near term, although the risks of weaker demand growth have increased. We amended our forecast for second-quarter corrugated board and containerboard demand, trade and production up slightly and made a few adjustments to containerboard demand and trade for 2025 and 2026. Additionally, higher manufacturing cost inflation is estimated to increase containerboard prices in the third quarter more than previously forecast.

Here are the key findings from our recent European paper packaging forecast.

1. We expect Western European corrugated board shipments to remain stable in the second half of 2024. Destocking reduced shipments in 2023, so we expect strong year-over-year growth. We believe that corrugated board markets are returning to normal seasonality this year, and monthly shipments will grow steadily rather than seeing sudden increases.
2. The slight growth in corrugated board demand is keeping demand for containerboard at a similar level now that the destocking and restocking periods have finished. Due to seasonality, demand conditions are expected to mildly weaken in the third quarter of 2024 and then improve in the fourth quarter. Virgin containerboard demand will grow faster this year, while recycled containerboard demand will expand more in the coming two years.
3. Western European containerboard net exports have remained high, although global containerboard overcapacity and soft demand conditions are creating challenges for exporters. We anticipate a slight slowdown in net export volumes in the second and third quarters before net exports start increasing again in the fourth.
4. The soft recovery in containerboard demand has slowly increased operating rates, which rose slightly more than one percentage point to around 86% in the first and second quarters of 2024. We estimate operating rates will decrease to around 84-85% in the second half due to increasing containerboard capacity. However, the timing of capacity start-ups will determine when operating rates start declining. Additional downtimes are probably over, but producers need to slow their machines to adjust their output to market demand levels during the forecast period. If we assume operating rates of 90%, the current overcapacity in Western Europe stands at more than 2.0 million tonnes.
5. Our forecast includes significant capacity closure assumptions. Operating rates will be about 1 percentage point lower if these assumed closures do not occur. This highlights the severity of the overcapacity situation, and we expect that not every high-cost mill or machine will be able to survive with operating rates this low.
6. Upward cost pressure in containerboard production will most likely continue, albeit at a slower pace. OCC prices have stabilized in July and are expected to remain at a similar level in the second half. A balance between OCC collection volumes, trade and domestic demand is approaching. Uncertainty regarding consumer spending might shake the OCC markets, and we are not ruling out volatility in OCC shipments and prices in the near term. Stronger demand and trade will likely increase OCC prices further, while weaker conditions could swing prices in the opposite direction.

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Overcapacity in the packaging industry in China has led to dwindling demand for recycled pulp manufactured in Southeast Asia, where most plants are operated by Chinese parent companies, with output shipped back to feed their machines or to be sold on the Chinese market.

China-affiliated recycled pulp mills in Southeast Asia, especially Thailand, usually pay top dollar for US premium brown grades, such as double-sorted OCC (DS OCC 12).

With OCC demand from the recycled pulp plants subdued, suppliers sought to sell US tonnages to regional board mills at discounted prices.

As a result, sellers’ offer prices were split – DS OCC offered to China-based customers was priced at $220-230 per tonne, while offers to regional board manufacturers was below $220 per tonne.

In Indonesia, where prices are $5-15 per tonne higher because inbound recovered paper cargoes are required to implement pre-shipment inspection at the country of origin, customers reported that US DS OCC were offered at two different levels.

“US DS OCC offered by vendors who export to China-based buyers was priced at $230-235 per tonne during the recent two weeks, and others were $225 per tonne,” a major Indonesian buyer said.

“We have reduced purchasing volumes of import OCC in line with sluggish box demand in the Indonesian market. Consumers cut back on spending, resulting in a decrease in food and beverage consumption. Large mills in the country have shut down machines to cope with the poor packaging consumption,” the buyer added.

Market related ‘downtime’

According to the buyer: “We see an increase in the availability of OCC collected domestically, a proof that the country’s small and medium-sized plants are taking market-related downtime due to the packaging slump. We have therefore decided to step-up purchases of local OCC and cut import OCC tonnage, which also enables us to haggle down prices for the latter.”

A large Thai producer has halted purchases of OCC and mixed paper imports for the past four weeks, which was a major setback for suppliers.

The Thai producer had their mixed paper cargoes rejected by customs in Thailand several weeks ago, with their inbound OCC goods subsequently subject to full inspections by the customs authority, according to a vendor.

“That leaves a hole in the market. We have no clue why the big-volume customer stops buying import OCC, apart from mixed paper,” the trader said.

Sources reported that the overseas purchasing arms of major Chinese producers had reportedly paid $180 per tonne on a FAS basis for DS OCC on the US West Coast, and other traders paid $173-175 per tonne.

A Vietnamese customer said that DS OCC volumes were readily available and they managed to haggle down prices for the grade.

As of Thursday August 15, DS OCC was sold for $220-225 per tonne to China-based buyers in Southeast Asia; however, regional board mills in Thailand, Vietnam and Taiwan paid $210-215 per tonne for the grade.

Prices for benchmark US OCC 11 were $205-210 per tonne, down by $5 per tonne from the previous assessment three weeks ago.

Japanese OCC soars

Restricted availability and a lack of shipping space and equipment caused prices for OCC exports from Japan to the region surge.

Following a jump of $10 per tonne in mid-July, prices for Japanese OCC continued to climb, up by $5-15 per tonne to $195-205 per tonne on Thursday, with the low end of the range paid by buyers in Taiwan and with the higher end of the range paid by Southeastern customers, mainly Vietnamese mills.

Japanese OCC prices have followed US brown grade prices in the past and have typically been equal to or $10 per tonne higher than European OCC.

With an intention of catching up with Japanese OCC prices, suppliers pushed for price hikes for European OCC.

A major European seller noted that mills in region had low OCC stocks and would need to replenish their depleted inventories given that Japanese OCC has became so expensive.

But buyers pushed back, citing weak packaging demand.

In the end, the premium European brown grade, OCC 98/2 was sold at $170-175 per tonne, edging up by $5 per tonne.

The benchmark European OCC 95/5 was $160-170 per tonne, widening upward from $160-165 per tonne three weeks ago.

Chinese OCC prices up, short supplies

In China, the price of premium brown grade, pre-consumer and import OCC was assessed at RMB 1,763 per tonne in the week to August 15, climbing by RMB 57 per tonne from three weeks earlier.

This was equivalent to $200 per tonne, excluding 13% value-added and RMB 150 per tonne in logistic costs. The Chinese premium brown grade is comparable to US OCC.

Rainy weather in northern China and high temperatures in southern regions have led to a shortage of OCC supply and generation has suffered.

“[Recovered paper] RCP suppliers are appealing to us for a price increase, citing the high temperatures that have impacted outdoor RCP collection activities,” a large paper mill said. “They are also voicing concerns over the slim profits and the high labor costs, arguing that the low OCC prices will result in a further reduction of generation.”

Some paper mills in northern regions were also experiencing a shortage of OCC supply due to the rainy weather.

However, the concentrated release of new capacity this summer has led to a rapid increase in demand for OCC. According to incomplete statistics, since June, new capacity of containerboard in China has reached 2 million tonnes per year, which has contributed to the rise in OCC prices.

Another source noted an additional reason for the price increase. When August began, Chinese paper mills started to push for price increases for finished paper in preparation for potential Mid-Autumn and National Day orders, which has led to a rise in OCC prices as well.

But the push to raise prices for finished paper has been challenging, with most downstream customers either rejecting the price increases or accepting only a partial rise. Multiple paper mills have stated this week that they have not seen an increase in finished paper orders.

Recycled pulp in China

High US OCC costs, low finished paper prices and weak demand in China have led to a loss of vitality in the recycled pulp market this summer.

Recycled pulp from Southeast Asia was offered in China at $285 per tonne, unchanged from three weeks earlier, but business was slack.

Chinese paper mills have reduced their use of recycled pulp, causing Southeast Asian pulp mills to have to decrease recycled pulp production and even shut down factories.

According to sources, a recycled pulp mill in Thailand, owned by a major Chinese packaging producer, was shut down at the end of July. The plant, which commenced operations in the first quarter of 2021, had a capacity of 200,000 tonnes per year for dry grinding pulp and 200,000 tonnes per year for wet pulp. The remaining OCC stocks from this plant were relocated to another joint venture factory investment by the Chinese company, which is closer to the port and has a cost advantage.

A recycled pulp mill in Malaysia was also closed in May.

In Malaysia, operating recycled pulp plants is no easy task. US OCC costs in Malaysia are higher than in Thailand due to additional costs incurred by the country’s pre-shipment inspections and logistic issues.

A recycled pulp mill in Malaysia owned by a Chinese paper mill said: “Recently, purchasing US OCC has been challenging. We are facing a shortage of shipping space and high freight rates. The suppliers’ quotes are significantly higher than our expectations.”

In addition, a source noted that many surviving independent recycled pulp producers in Southeast Asia are now merely sub-contracting to Chinese mill. They no longer produce and sell on their own. They only do contract runs on a basis of a per-tonne fee instead.

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Total recovered fiber consumption at US mills crept up 6.8%, or more than 1 million tons, from January to June 2024 year-over-year, from 15.40 million tons in the first half of 2023 to 16.44 million tons in the first half of 2024.

US mills’ hunger for OCC gobbled up 8.2% more tons of the bulk grade in the first half of this year, at 12.34 million tons, compared with 11.40 million tons in the first half of the year prior, a 935,100 ton-climb in one year. For mixed paper, mill consumption improved 3.9% year-over-year, to 1.911 million tons from January to June 2024 from 1.84 million tons from January to June 2023.

Monthly consumption for both mixed paper and OCC also jumped when comparing June 2024 vs June 2023. US mills bought 8.4% more OCC in June of this year, at 2.02 million tons that month, compared with 1.86 million tons in June 2023. Mills so far this year have purchased 2.0 million tons/month of OCC. This compares with 2023, when mills took in 2.0 million tons monthly of OCC only two months out of the year: in August and in December, both at 2.03 million tons per month.

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Henderson, other PMs ‘running very strong’

Consumption ballooned in the last year with new recycled capacity at North American mills. In North America, five machines with 2.4 million tons/yr of additional 100% recycled containerboard capacity started up between January 2023 and December. The startups include Domtar’s converted paper machine (PM) in Kingsport, TN, Cascades’ new mill in Ashland, VA, ND Paper’s Biron mill in Wisconsin Rapids, WI, Atlantic Packaging’s 400,000/yr PM in Whitby, ON, Pratt’s new mill in Henderson, KY, and an upgrade at Packaging Corp of America’s (PCA) Jackson, AL, mill added more demand for OCC.

These startups are running seemingly well, contacts told Fastmarkets’ PPI Pulp & Paper Week (P&PW) in August. Some have faced hiccups related to mostly equipment issues, such as a “defective part” at Cascades’ Bear Island mill in Virginia that slowed the PM.

In Kentucky, a contact told P&PW that Pratt’s Henderson mill is “definitely running very strong.” A seller contact said Pratt “has been fairly aggressive for their Henderson mill” for mixed paper orders.

“(At Henderson), they’re making the hell out of some paper,” a contact said of the Kentucky mill. “They’re still a young paper mill.”

Mixed inventories down 18.5%

Inventories at US mills for mixed paper fell dramatically in June 2024, according to AF&PA’s quarterly report. Mills had just 97,000 tons of mixed paper raw material stock in June 2024, a decrease of 18.5%, or 22,000 tons, compared with 119,000 tons of stock in June 2023. In all of 2023, monthly mill inventories of mixed paper didn’t dip below 108,000 tons/month in any month of last year. Supplies of mixed paper slowed some this year for a host of reasons, including more technologically advanced material recovery facilities sorting out more OCC rather than mixed, as WM’s VP of Recycling Brent Bell told P&PW in August, as well as wet weather dampening loads, and increased quality concerns as a result.

Mills held nine days of supply of mixed paper in the second quarter, and for OCC, just seven days of supply. At 475,1000 tons, monthly raw material stock of OCC in June 2024 declined 4.3% vs June 2023’s monthly inventory levels of 496,2000 tons.

“Everybody is taking (OCC) …,” a supplier contact in the East said, and “we’ve had a couple of mills asking for extra trucks.”

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The total share of recovered paper in finished paper and board production in 2024 is to top 43.9% compared with 43.6% in 2023, 42% in 2022, 36.6% about 20 years ago in 2005, and 25.4% in 2000, according to the 64^th Annual Capacity & Fiber Consumption Survey published on May 17 by the American Forest & Paper Association (AF&PA). In 24 years, the total recovered fiber’s share of paper and board production is to jump 18.5% this year.

The growth is in old corrugated container (OCC) consumption. US mills this year are to use a record volume of OCC. They already are on pace to surpass record levels from three years ago, when mills consumed 24.32 million tons of OCC in one year during the Covid-influenced packaging demand surge. Now, after four 100% recycled-content containerboard machines with 2.4 million tons per year of combined capacity started up in North America, including three in the US totaling 2.1 million tons per year of capacity, OCC consumption is on a run-up.

The AF&PA survey shows that mills are to consume a record 25.12 million tons of US OCC this year. The 25.12 million tons, which is 800,000 tons more OCC usage this year compared with 2021’s highs, would be the biggest year on record for mill consumption of OCC.

Mills have been buying 20 million tons or more of OCC every year since at least 2014 and the first year of 20 million or more consumption was in 1995 at 20.5 million tons just as US actual box shipments were on the front end of a four-year 9% increase. In 2000, based on AF&PA data, mills consumed 20 million tons of OCC in total paper and board production of 96.05 million tons. In 2024, mills are expected to produce 66-68 million tons total of paper and board.

Mixed paper consumption in 2024 is to reach 4.1 million tons, according to the survey. The year-over-year climb is to be 460,000 tons from the 3.6 million tons of mixed mills took in during 2023. Still, mixed paper consumption mirrors recent years’ volumes, when mills consumed 4.0 million tons or more of mixed paper each year from 2019-2021.

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More OCC, less ONP

OCC’s gains in the last 20 years partly replaced mixed paper’s declines, as well as the fall seen in old newspaper (ONP) consumption. In 2005, mills consumed 34.2 million tons total of recovered fiber, with OCC comprising 20.0 million tons, mixed at 4.5 million tons, and ONP at 5.7 million tons.

In 2024, mills are to take in 5 million tons more of OCC, at 25.12 million tons, 400,000 tons fewer of mixed paper at 4.1 million tons this year, and almost 5 million tons fewer of ONP at 814,000 tons this year.

The drastic downfall in ONP consumption is directly tied to the shuttering of newspapers across North America. Two major newspapers in recent months moved their printing plants.

In March, the Los Angeles Times moved from its downtown Los Angeles printing press to Riverside by the Southern California Newspaper Group, citing rising rent costs. The LA Times‘ circulation numbers were to stay the same. At one time, the downtime press printed 1.5 million Sunday papers per week.

The 177-year-old Chicago Tribune‘s May 20 edition was the first time in history that the newspaper edition wasn’t printed in Chicago after the newspaper moved its production from the large plant along the Chicago River, where it had called home for 43 years, to a suburb, Schaumburg.

A report from November 2023 said that the rate of local newspaper closures “accelerated to 2.5 a week in 2023,” according to the Medill School of Journalism at Northwestern University.

The report said last year alone, more than 130 papers closed or merged, “and the country is on track to lose a third of its papers since 2005 by the end of next year.” More than half of all US counties have just one or no local news outlets today.

Recycled fiber rises as virgin fiber falls

Recovered fiber’s gains in total paper and board production occur as new and converted recycled paper machines started up as virgin capacity closed.

In North America, five machines with 2.4 million tons per year of additional 100% recycled containerboard capacity turned key by Domtar in Kingsport, TN, ND Paper in Wisconsin at its Biron mill, Cascades in Ashland, VA, Atlantic Packaging in Whitby, ON, and Pratt in Henderson, KY. The first of the mills started up in January 2023 and the last of the five started up in November 2023.

Permanent shutdowns, at the same time, represented about 80% of the total startup capacity. The 1.713 million tons of virgin capacity closures as of late came from major producers, including International Paper (IP) and WestRock, the two largest containerboard producers in North America.

In Orange, TX, IP shut two PMs of kraft linerboard production, totaling 700,000 tons, at yearend 2023. WestRock ended production at its North Charleston, SC, 280,000-ton kraft linerboard mill in August 2023, at its Tacoma, WA, 380,000-ton linerboard and kraft paper mill in September 2023, and at its 353,000-ton kraft linerboard mill in Panama City, FL, in June 2022.

Steady OCC, mixed prices this week

Buyers and sellers told Fastmarkets’ PPI Pulp & Paper Week this week that domestic OCC and mixed paper prices stayed firm since the start of May, when OCC prices remained mostly steady save for rises off the West Coast, and mixed paper prices hiked up by $5-10 per ton at the FOB seller’s dock.

Contacts this week said some mills built up raw material stock enough throughout May that they were pushing back on offers, while other mill groups sought additional OCC and mixed paper tons. One major mill contact said on May 23 that mills took “unscheduled downtime due to sales.”

“Several mills are full of OCC and pushing back, and others are looking to build inventory for the (Memorial Day) holiday weekend,” a seller contact in the Midwest said. “That being said, price remains unchanged.”

This article was taken from PPI Pulp & Paper Week. Speak to our team to learn more about our news and market analysis, prices, forecast and more.

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Companies could improve their profitability by closing containerboard capacity, but this could reduce their future growth potential and market share. The volume of closures needed to raise operating rates back to their long-term average of 92% in Europe is huge. So, corrugated board and containerboard producers also need to find other options to improve their competitiveness. Vertical integration through mergers and acquisitions (M&A) could be one method to employ to strengthen operations.

Recently, we have heard news of a possible merger of Smurfit Kappa Group and WestRock. This deal would create a globally integrated company that might fare better over economical cycles than non-integrated businesses. The deal is unusual because integration has taken place between local containerboard and corrugated board producers on the same continent. And now, according to recent news, another mega-merger might take place between DS Smith and Mondi. What kind of benefits could these companies see in their corrugated board and containerboard operations with this deal? Could these actions be just the start of a wave of M&A that could consolidate the corrugated and containerboard market in Europe?

Location of corrugated board and containerboard capacity for DS Smith and Mondi

DS Smith is currently the second-largest containerboard producer in Europe. The company has a total containerboard capacity of 4.1 million tonnes and focuses on recycled containerboard production with a small amount of virgin containerboard and other packaging grades. About 87% of its capacity is located in Europe. with the rest in North America. The company’s corrugated board plants have an estimated capacity of more than 9 billion m², of which about 93% are in Europe and the rest in North America. Its European assets are located across the continent, but the majority are in Western, Central, and Southern Europe.

We estimate DS Smith buys more than 600,000 tonnes of containerboard on the open market since its own containerboard production is not enough to supply its corrugated board plants. Of that 600,000 tonnes, about 400,000 tonnes is virgin containerboard and the rest is recycled containerboard. As a result, the company’s investment plans to increase its containerboard capacity in Italy and Portugal make sense. However, even after that, the company could operate its containerboard mills at maximum capacity with the assumption of prioritizing internal production but would still be short on virgin containerboard.

Mondi is currently the fifth-largest containerboard producer in Europe and has a total containerboard capacity of 2.6 million tonnes, of which 90% is in Europe and the rest is in Africa. All of the company’s estimated 2 billion m² corrugated assets are located in Europe. Mondi is also a major producer in other paper and packaging grades since it has a capacity of more than 4 million tonnes of kraft papers, pulp, graphic papers and specialty papers. Its facilities are mostly located in Emerging Europe.

We estimate Mondi has just enough recycled containerboard capacity to satisfy its corrugated board plants. Meanwhile, the company has an estimated 1.5 million tonnes of excess virgin containerboard capacity. The company can only utilize about 45% of its containerboard internally at its corrugated board plants. Integration with a corrugated board producer who is short on virgin containerboard would benefit Mondi and likely improve its operating rates and profitability.

Price of M&A might be too high for the benefits

Since vertical integration increases operational efficiency, it is obvious why containerboard producers are seeking corrugated board assets; increased integration improves their profitability significantly and could, at the same time, push some high-cost producers out of the market. Corrugated board producers could also see cost and synergy benefits from mergers and acquisitions; however, they should see a similar demand recovery in the near term regardless of their ownership. As a result, it is not necessary for them to search for mergers and acquisitions as the cost structure will likely remain stable; we expect containerboard supply to remain abundant and affordable in the near term.

Containerboard producers can leverage Fastmarkets’ market-reflective price data and forecasts to capitalize on the opportunities from potential mergers. By staying informed on industry trends and pricing dynamics, producers can make strategic decisions to enhance operational efficiency, optimize profitability, and adapt to changing demands effectively in the dynamic containerboard market landscape. Speak to our team today.

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