Used cardboard prices come under pressure
12 May 2008
UK cardboard mills look set to start reducing the prices they pay for material in the wake of an easing of demand and prices in the export market.
The slow-down in demand is being seen as a correction period in the wake of very high export prices for old-KLS (used cardboard) in March which reached as much as £90 a tonne. To some extent the reduction in demand this month mirrors a reduction in arisings, although merchants point out that they can still sell all material.
The export market looks to be heading from its highs of March down nearer to £70 a tonne for May, ex works, and while overseas buyers such as Chinese mills have not stopped ordering, their orders are at a lower level. At the £70-73 a tonne level, last month's UK domestic prices of £68-74 seem out of place for May - traditionally these home prices have been about £10 or more below the export level.
Consequently, it has come as little surprise that there are signs this week that the UK mills are starting to drop their prices to £65 a tonne and below, with some merchants being quoted lower prices for newer orders.
The question being asked in the marketplace is how significant is the fall in the export price? Much will depend on the world economy and opinions range from the view that the "the outlook is bleak" to heading towards a "more stable, balanced market".
But, with current demand also being reduced because of downtime and closures across many companies, the true level of the market could, according to one expert, be worse than is immediately apparent.
China is seen as the market driver but because of the impact on it from American demand there is some concern that there will be a lull in demand until the autumn at least as US households reduce their spending on goods which need card packaging. And, the situation could be exacerbated by the Olympic Games in China which start on August 9.
There are some suggestions that the Chinese authorities would like to see some factory closures ahead of and during the Games to reduce air pollution and also to reduce shipping movements. As a consequence a full return to normal demand in China might not come until October.
Nevertheless, the fundamentals for the cardboard mills at home and overseas are still seen as positive although there may be some delays in commissioning of new mills in China and the closure of older and less efficient plants both in Europe and China.
Other markets are also expected to come into play - for example, Nine Dragons has earlier this month announced plans to buy the Cheng Yang paper company in Vietnam. Nine Dragons said it was aiming to raise its production and export bases outside of China to increase market share.
In other paper grades, there remains strong demand for used newspapers and mid (office) grades. Newspapers are sought as the developing world produces more papers and are accordingly not so immediately by the credit crunch problems.
Tissue makers have increased their buying prices for material such as sorted office waste while the UK newsprint, mills are facing price pressure, much to their concern, for used newspapers. Again, as with newspapers, tissue products remain in demand and are not seen as being so volatile in times of an economic downturn.