What a tough year 2020 was. The Covid-19 pandemic forced the world to adapt and change, with healthcare becoming top priority worldwide. It affected the global economy as never before and there were significant economic consequences due to lockdowns, low productivity, business suspension or closures, trade disruptions, travel bans and so on. The pandemic totally disrupted the recycling sector, and the impact was felt across the globe.
The Bureau of International Recycling (BIR) released Recovered Paper Quarterly Report-January, which indicates it was a hectic year for the secondary raw materials sector. A year ago, the paper and board industry was suffering the nightmarish combination of oversupply, high stocks and flat demand. Then came the first lockdown and everything changed.
Demand surged as paper mills tried to stockpile as much as possible when faced with both high demand and fears of lower collection rates. Prices duly increased, collection rates decreased, stocks disappeared and the market arrived at a balance. The sector has continued to experience a few market corrections, but prices have been stable thanks to e-retail and packaging, the report states. The economies of South East Asia have recovered earlier than in Europe; sales into this region have eased the oversupplied European market. Freight is a tricky part of the equation, but going by the report, conditions should ease during the first quarter of 2021.
The newspaper industry is not experiencing the same positive dynamics as the packaging sector. The various Covid-related lockdowns have been catalysts for an even greater transition towards digital, with print media now facing a crisis that is affecting the prices paid for the higher grades of recovered paper, which correlate closely to the currently low price of pulp.
In France, no offer has been received as yet for UPM’s Chapelle mill which stopped production last year. The same applies in Bordeaux where SAPB is looking for an investor. Meanwhile, Norske Golbey has announced the good news that it will produce cardboard from one of its two mills by 2023. New capacities coming on stream across Europe, including in France, Germany, Italy and Turkey, will amount to almost 4 million tons of annual additional output potential over the next three years, the report states.
It has been a good start to 2021 and many experts agree this will be a positive year for raw materials. However, the industry still needs to adapt to new international regulations and additional constraints which, in some ways, could provide a competitive advantage. But the main question that remains is how the Covid-related healthcare situation will evolve and how it will affect the economy.
Looking back at the final quarter of 2020, the Germany report indicated that at the start of Q4, recovered paper volumes were somewhat lower than normal for the time of year. In view of packaging manufacturers’ improved order books, there were good sales opportunities for the lower grades and no build-up of stocks anywhere. Despite stable recovered paper export prices to the Far East, Germany’s paper and board industry chose to reduce October prices for the lower grades by a low double-digit amount. Combined with the sustained stability of the export market, this led to large volumes of the lower grades being shipped to countries outside of Europe, including India, Thailand and Vietnam, the report indicates.
Supply and demand were in balance for the medium and higher grades; incoming volumes of the woodfree grades were quite low. Small downward price corrections were made and the peaks reduced, partly in line with price developments for pulp. In the second half of November, renewed Covid-based government restrictions resulted in a drop in volumes collected from businesses, particularly catering and related sectors. This coincided with very high recovered paper demand from packaging manufacturers, which showed an increase over October. Part of this production was likely intended to build mills’ stocks to satisfy possible peaks in demand for packaging during the partial lockdown, the report highlights. Producers of graphic and hygiene papers also ordered recovered paper in large quantities, such that collection companies held practically no stocks. Among the lower grades, demand for recovered paper within Europe was supplemented by still-lively orders from India, Vietnam, Thailand and other Asian countries. Export prices climbed whereas domestic levels remained unchanged.
Various factors determined recovered paper market developments in December. The state-decreed “light lockdown” in November had resulted in slight falls in collection volumes for one or other segment while the “hard lockdown” beginning on December 16 led to a further small decrease, with most of the material coming from households. Overall, however, recovered paper collection volumes in Germany were at a high level and availability could be described as very good. In December, deinking, files, printing paper, woodfree grades, woodfree white and rotation enjoyed reasonable but subdued demand, and prices developed accordingly. In contrast, packaging drove the market as mills’ order books were again boosted by the lockdown and by the increased requirement for packaging. At the same time, packaging manufacturers in Germany and elsewhere in Europe were running at full capacity to satisfy the massively increased demand for new paper from countries further afield.
Given the positive and stabilising influence of South East Asia and India, there were increased purchases of recovered paper by mills in Germany, as per the report. Even though the limited availability of containers hampered exports, this demand from Asia contributed to a shortage of lower grades in Germany. Mixed paper, supermarket grades and used corrugated cardboard subsequently increased by up to Euro 30 per tonne.
The report for the Eastern European market indicated that the final quarter of 2020 saw a huge price increase for OCC on the back of healthy demand as mills prepared themselves for the holiday period when there is higher cardboard consumption. On this occasion, demand has remained almost stable into the early part of 2021, as per the report. Meanwhile, demand and prices for deinking material are said to be quite stable. The recovered paper outlook remains positive in the Eastern European market, as is the case for other commodities such as metals. The impact of the pandemic has diminished, slowing the market but not demand.
Recovered paper prices increased in December in Italy, owing to a combination of lower collection volumes resulting in part from pandemic-related lockdown measures; and reasonable demand not only from domestic consumers but also from export buyers based elsewhere in Europe and beyond. Serious transportation difficulties have been encountered in supplying mainly non-European markets owing to a scarcity of containers and high costs; the price increases brought about by these additional transport costs are being absorbed by consumers. Owing to the competition from overseas customers, Italian mills have been obliged to accept increases in price to Euro 120-125 per tonne for OCC, Euro 90-100 for mixed paper and Euro 90-105 for deinking, according to the report.
Serious complications are anticipated for private companies due to the recent reclassification of waste materials: previously split into the categories of urban waste and special waste (the latter including all industrial waste and similar), these have now been brought together in a single category that will clearly favour municipal operators. Furthermore, a new auction system has been introduced by national recovery consortium COMIECO with the purpose of reducing exports and supporting domestic mills. Recovered paper negotiations in Italy always begin after the early weeks of January. The scope for further increases will depend on whether mills are able to raise the prices of their in-demand reels. If no increase is implemented, current lockdown measures and the winter weather will correspondingly influence collections.
The Scandinavian market for OCC was stable in October and November last year, but demand and prices increased again in December, as per the report. Mixed paper followed OCC market trends over the period. The graphic market was stable throughout the quarter, whereas demand for the higher grades has been in continuous decline over recent months, with a surplus beginning to emerge in this segment. Scandinavia’s tissue mills have improved their stock levels and are now enjoying a more stable situation. Changes in the export situation and differences in stock positions at the various mills are likely to have a great impact on the market over the coming months.
The final quarter of 2020 was quite challenging regarding OCC in Spain. On the one hand, export buyers put pressure on the market and drove prices higher. There were many new players on the market overall from India. However, a lack of available vessels and containers made exports more difficult, and freight to other Asian countries meant a higher transport component and so a lower net price. So domestic paper mills could afford to offer prices below export levels despite their large demand and low supply. Stock levels were very low at all yards, and prices increased every month and ended the quarter around 30 percent higher than at the start, the report highlighted.
Deinking prices were increasing at a similar rate. However, this market was more in balance, with less export pressure and much lower domestic demand. According to the report, white grades have been more difficult to manage owing to high prices from the packaging paper industry, which the tissue market could not afford owing to low virgin pulp fibre. Some collectors were reluctant to accept the lower prices from tissue mills and decided to stock up on these grades because packaging mills were not demanding all the available material.
Elsewhere in the world, the recovered paper industry in Turkey has been affected to a lesser extent as compared to other sectors. From March 2020, tissue paper producers followed by fluting and liner mills started to work at full capacity and this is still the case, as per the report. Domestic collection rates are falling owing to Covid restrictions, which has implied an increase in imports, and the mills that have insufficient recovered paper stocks are importing on a regular basis. The depreciation of the Turkish lira during the third and fourth quarters of last year made imported goods more expensive, leading to an increase in domestic market prices.
Import controls were modified under a regulation issued by the Turkish government on September 3, 2020. Paper mills’ imports are now limited to a maximum of 50 percent of their production capacity as compared to the historic average of 80 percent, leading to a major backlash across the industry, the report underlines.
The Balikesir Varaka paper mill started operating in 2020 and has increased annual demand by 400,000 tonnes while the Kipas Soke mill, scheduled to become active by the end of this year’s first quarter, will add a further 800,000 tonnes to the demand total. Taking into consideration all the capacity expansion investments, domestic demand in 2021 is projected to be around 5.3 million tonnes. Once the Kutahya Hamburger facility starts up in 2022, this figure is expected to increase by around 17 percent to 6.2 million tonnes.