January sees sharp price rise for recovered fibre exports

Talk in the market is of “speculators, people knocking on doors and agents competing for the same materials”.

Paper mills at home and abroad are driving demand for recovered fibre

Prices have risen most sharply for used newspapers, from MRFs and kerbside collections, and also for cardboard and mixed paper of a good quality.

The rising prices have caught some in the recovered fibre sector by surprise as a stable January had generally been expected, especially in the board sector.

Used newspapers

Demand for used newspapers and magazines is being driven by several factors. This includes demand from Holmen to feed its Madrid mill which has seen a shortfall in tonnages expected from the Spanish kerbside market as well as good demand from India and China and less material available in the US.

As yet, UK mills have not moved from their general local authority contracted price of about 45 per tonne but spot-market prices have reached 50 per tonne. This could see some local authorities – especially those in southern England – who are in a position to renegotiate their contracts or are actually renewing them, start arguing for a higher price.

For many councils this debate might well fall to their waste management contractor, especially Veolia, which has recently signalled its recognition of the importance of the recovery paper sector in buying Hollands Recycling in the West Midlands.

The paper mills will point to the highs and lows in the sector and are expected to vigorously resist having to pay more for contracts material especially as mill costs have risen during 2006.

However, there is pressure in the sector because the annual increase in the amount of newspapers collected from households is slowing and questions are also being asked about the recovery level of free newspapers distributed at stations.

Looking at mill costs overall, Chris White, commercial manager at Aylesford Newsprint, said that mills had seen costs such as chemicals and gas rise during 2006 although the recent drop in gas prices was welcome. He said that stability in recovered prices was important to the sector.

”Door-to-door collections are still being developed in Spain and the company took in less than expected. “
– Charles Thompson, Holmen

And, money coming into the mills from the newsprint they make is unlikely to rise substantially in 2007. Annual negotiations between some of the three UK mills – Abitibi at Ellesmere Port, UPM-Shotton on Deeside and Aylesford in Kent – and the newspaper publishers have taken place recently. It is expected that any increase in price will be limited to around 2-3% for 2007 although the mills would like more. It is not clear whether the talks have yet been concluded.

Charles Thompson, UK recycling director of Holmen which is currently a strong buyer of used newspapers, confirmed that the company’s Spanish mill was running well. Mr Thompson said the Madrid mill “has been consuming more than budgeted. Door-to-door collections are still being developed in Spain and the company took in less than expected so there has been a bit of a shortfall.”

Mixed paper

One surprise in the marketplace is the strengthening demand for mixed paper on the export market. This could lead soon to a price increase in the domestic sector bringing the mixed price remarkably closer to the price paid for Old Kls (used cardboard).

The recovered paper sector is keen to point out that there is a big emphasis on a good quality mixed paper grade which does not have contaminants in it from the domestic waste stream. The Environment Agency is still rejecting containers at the dockside although there is some concern that officials are being over zealous in their interpretation of the regulations.

Prices for mixed papers have reached the 50 mark for export and with the UK price roughly 20 less the gap appears to be unsustainable.

Cardboard

On the cardboard side, UK mills are starting to eat into the stocks they had although most are thought to be comfortable with their current position while keeping a close eye on the overseas market. Some buyers had expected to be paying more attention to the value of the Packaging Recovery Note rather than export prices and now seem to have written off PRNs as likely to have a low value during 2007 and playing a smaller part in market pricing than in recent years.

There have also been mill closures such as Taplow by the St Regis Group which owns Severnside Recycling. In the St Regis case, this means the company still has access to more than one million tonnes of material and less of its own mills to feed. The company has also secured important extra contracts in recent months with major retailers including Morrisons. Already having contracts with retail giants such as Tesco, it remains to be seen whether the hike in market prices will be reflected in deals with the retailers.

Economic

One major UK user of used cardboard is Smurfit Kappa Recycling which has 10 operations in the UK including important mills in the Midlands and Kent.
Managing director Simon Weston told letsrecycle.com that the packaging sector had managed to put itself on a more stable footing recently. He said: “In general terms, the series of closures that have happened over the past few years have put the brown packaging market back into balance and means that companies have been able to demand a more economic selling price.”

February

The way the market goes in February is still open for debate with few experts suggesting any downturn. However, with the Chinese New Year starting on February 18 there could be some delay in the export market although this has less impact than in the past. One merchant said that paper companies in China now owned wharves and had more control of shipping and so could store and better move material.

• The last big boom in the recovered paper sector came in 1994 and there is often talk of cyclical movements in recovered fibre, from feast to famine. One renowned sector expert thought a boom could come 12 months ago – whether this could happen in 2007 instead is an open book. In 1994 the boom was driven by hardwood shortages in Europe, strong demand in the US for pulp because of fears about strikes in the forestry sector and a jump in demand for recovered paper to feed South East Asian machines.