Since the beginning of 2010 recovered paper prices have surged on the back of strong demand and low generation. This is by no means unusual and would at first glance appear to be almost 'business as usual' prior to the market collapse at the end of 2008.
Paul Dumpleton is director of materials management at Shanks
What is different this time is that the demand for volume has come from Europe, not just the Far East.
The re-emergence of Eastern Europe as a major player in recovered paper packaging is starting to have a major impact upon the global market and this is set to continue for some time yet.
In the third quarter of 2009, two recovered packaging paper mills opened in Poland and Hungary each with an incoming requirement of 600,000 tonnes and, in the first quarter of 2010, another similar facility opened in eastern Germany with an incoming requirement of 800,000 tonnes.
When you combine this growth with the proposed rebuilds in Russia this year, Spain in 2011 and new builds in eastern Germany and England in 2012 and a further new facility in Poland in 2013, the outlook for the European recovered packaging paper sector looks more promising than it has done for many years.
The recent freight increases have pushed container charges close to $2,000 per unit delivered to China and this, combined with the high recovered material prices in Europe, has put real pressure on the Asian end users. For the first time in some while the Asian market has been unable to bring prices down to compensate for increased transport costs due to the demand in Europe.
The one factor that is starting to mitigate the situation is that we are just starting to see increases in material generation for the first time in over two years. This factor, more than any other at this stage, will tip the balance and start to bring the market back onto a more even keel.
Although the packaging sector looks relatively healthy the same thing can not be said for newsprint where over capacity exists right across the sector. There has been and continues to be down sizing in North America and the European market continues to examine its production base. The fact is that falling pagination caused by the economic downturn, reducing advertising and property sales, combined with the growth of digital media continues to have an adverse impact upon the sector.
If we look at the Auk as an example, demand peaked in 2006 at 2.6 million tonnes but the market has now reduced to a demand in 2009 of just two million tonnes.
This will of course recover somewhat as the economic climate changes and advertising increases however, consolidation in the sector is inevitable.
So what effect will these factors have on price?
After the severe economic downturn experienced at the end of 2008 and through 2009 any recovery was bound to be on a stop start basis. The first quarter of 2010 has benefited price on the back of new capacity and low generation particularly for mixed papers and cardboard.
As we head into the middle of the year it is likely that we will see prices reducing as the increases in freight to the Far East really start to bite but it is also likely that we will see a re emergence of demand as we go into the third quarter. The pull through of seasonal demand will combine with the continued growth of world manufacturing as national economies continue to recover and this could again put an upward pressure on price.
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