Prices in the waste paper market for used cardboard are falling fast, with some of the lowest prices in years being proposed for the month of June.
Expectations within the UK are that prices for used cardboard (Old KLS/OCC) could even fall to as little as £45 per tonne at domestic mills, with overseas orders becoming harder to get and prices down to below £60 for export to China. And, some in the sector expect that some material could be hard to move, becoming “distressed tonnage”.
The decline in the cardboard market comes largely because of reduced orders from China. Prices for used cardboard were as high as £185 per tonne for Chinese orders last autumn but in May have dropped to around £60 as a result of the low demand.
Within the UK extra stocking of material, ahead of the expected Brexit at the end of March, has also exacerbated the downturn.
Prices at the current low levels are seeing waste paper merchants and waste management companies having to reinforce and increase charges for collections, particularly when small volumes are involved. At the same time rebates for material are being reduced.
In May, prices for used cardboard to south east Asia had even been higher than prices for China because they were supported by the PRN, but as with other markets these prices are expected to fall too, potentially to around the £50 mark. Retailers and manufacturers are widely expected to seek substantial cuts in the amount they pay for new cardboard boxes because of the lower costs of production at the board mills.
Simon Ellin, chief executive of the Recycling Association, described the market as “in a hell of a mess with next to no orders from China. I know there are people today worried about their business and where things are going.”
Chris Collier, managing director of Smurfit Kappa Recycling UK, has cautioned that “poorer quality material may potentially have no home to go to.”
And, Simon Weston, director of raw materials at the Confederation of Paper Industries told letsrecycle.com that “the situation is very serious and reflects the situation beyond our shores”.
Prices paid for mixed paper, which can typically contain some cardboard, newspapers, magazines, leaflets, scrap household paper and other items, have remained relatively steady but at generally low prices. This is in contrast to fears in the past that this market might have collapsed in the wake of China’s ban on mixed paper.
However, despite the relatively stable mixed papers market, the waste paper sector, including waste management companies, are seen as reliant on receiving “a reliable and reasonable price” for used cardboard and also newspapers to support their business. Some in the sector consider that £60 a tonne is needed to cover the operation and make a small profit when dealing with used cardboard.
Domestic mill demand is said to be steady for used cardboard but with less spot orders about. Over the past few years the three domestic mill groups (DS Smith, Smurfit Kappa and Saica) are all said to be using less than in the past because they have increased their usage of mixed papers in the cardboard production process. Operations at Saica’s mill in Partington, Manchester have also been disrupted by fires in its stockyard.
Simon Ellin (Recycling Association) told letsrecycle.com that material is still moving but that there are “next to no orders from China”. And, he reasoned that China had a “a moral obligation to take the packaging back from all the items we are still importing from China. We have told Defra this. The message to China should be that ‘We have met 0.5%, look guys you are still delivering material to the UK and back-to-back contracts for the packaging need to be in place’.”
Looking ahead, Mr Ellin said that the “rest of year could be difficult.” And, he emphasised the importance of the PRN (packaging waste recovery note). “The fall in prices shows the importance of having a healthy PRN market for plastics and card which can help keep markets moving.” Speaking at Letsrecycle Live last week, Mr Ellin said that local authorities might well not have any collections at present, if it wasn’t for the PRN.
“The better the quality we can make the better opportunity we can take.”Simon Weston
Raw Materials Director,
Confederation of Paper Industries
Seeing the situation as “very serious”, Simon Weston (CPI) commented that the “influences extend beyond our shores as well as closer to home with uncertainty over Brexit and destocking of supply lines following our non-departure in March. Moribund economies in Europe, and the ongoing difficult Sino American relations are also factors.
“However, it should also encourage us to reflect on making the product as marketable as we can so that whatever opportunities arise, we can take them. The better the quality we can make the better opportunity we can take even when markets are difficult.”
Simon Ellin (Recycling Association) also spoke at the Letsrecycle Live event at Stoneleigh Park last week. He referenced the “huge game change for industry” that China’s Green Fence with its quality and self-reliance approach had brought to markets.
In 2016 China took in about 28 million tonnes globally and 2019 forecast is for 11 million tonnes, he said. “This has changed the markets and has also changed the industry. There is still a long way to go but has focused us to up our game in terms of quality.”
And he also commented on mixed paper, which he said is “in demand, quite good demand, there is the Amazon factor.” Referring to mills using more mixed paper, he said: “Mills have invested, for mixed it is not quite the Armageddon we had expected post-China.”
In terms of current markets, he said: “What we are seeing at the moment is short to medium term turbulence. Material will go to other areas of South East Asia, Europe and elsewhere.”
On the topic of China eventually agreeing to accept that waste paper is not a waste, he thought that this was “highly unlikely. Maybe, maybe they might soften a bit but there are no signs they are going to back down on this.”
Chris Collier (Smurfit Kappa Recycling), also speaking at Letsrecycle Live last week explained that his company was the largest producer of cardboard and kraftliner in Europe taking in 6.2 million tonnes of waste paper, or paper for recycling, annually.
He cautioned that export orders had slumped and that “China has fallen off a cliff!”. And he likened the reduction in demand from China as the equivalent to Smurfit Kappa closing 60 250,000 tonne paper mills.
And, while new capacity is planned in Europe, including 2.6 million tonnes in Italy and 2.1 million tonnes in Germany, none had been announced in the UK for the next five years.
He also pointed to the influence of American material in world markets with the US too facing restrictions in China although there is a preference for its material as its waste cardboard is usually of a better quality than that of the UK.
“America is in trouble and prices are crashing,” said Mr Collier. “But the Americans don’t hang around. They are landfilling. They are also exporting to Europe, the quality puts our material to shame and it is going to have a big impact.”
In the wake of the Stoneleigh Live event, one American recycling expert explained to letsrecycle.com that America was” starting to recover from the shock of the restrictions imposed by China”. To start with, this had meant some communities had cut back on collections and even sent material to landfill.
But, there are now signs of stronger markets and new markets being developed within the US itself and overseas.
On the ground in the US, while some areas are still landfilling cardboard, collections are even restarting in others as markets develop and more confidence emerges.
There are also new paper mills being built and planned within the US and investment in sorting and processing technologies at materials recycling facilities. This is also being mirrored on the plastics front.