An ongoing slump in orders for used cardboard from Chinese paper mills is expected to lead to further price reductions in domestic and export markets for the material.
The price fall in the waste paper market is likely to hit material from the retail sector but could also have a sharp impact on arisings from civic amenity sites and kerbside collections.
China’s demand for used cardboard – known as OCC or Old KLS – has been falling since the introduction of import quotas coupled with the country’s move to only import high quality material.
Quotas for 2019 have been reduced and mills in the country are also said to be sitting on some allowances as they try to ensure they have approvals stored which they might use during stronger periods of demand. Consequently, exporters of OCC who had been expected the material to go to China, are now having to seek out alternative markets.
Some material is still moving to China, albeit in smaller loads, with more deep sea tonnages of used cardboard being sent to South East Asian countries including Indonesia, Malaysia, Myanmar and Vietnam as well as India. All of these markets are now said to be filling fast. Bizarrely, these countries usually paid less for material than China but now prices are being paid above the China rate in some instances – Chinese mills had normally been paying £20-30 more for their OCC because it is of higher quality.
Prices paid for material for the Chinese market are said to be heading down towards £65+ per tonne although there have been some orders above £70 earlier this month. The prices paid by mills in South East Asia and India have been higher in recent weeks because about £17+ additional revenue is being paid by approved mills who are gaining income via the UK’s PRN (packaging waste recovery note) system. Under the system, paper mills in Indonesia, Malaysia, Vietnam, India and elsewhere are able to issue export PRNs (PERNs) on tonnages of used cardboard imported from the UK as well as on a percentage of mixed paper.
For example, assuming the price to India is at £72 per tonne, the actual price, assuming inclusion of the full export PRN value at £17 per tonne, could be equivalent to as low as £45 per tonne. With PRN prices possibly edging down this month for paper, prices to India without a PRN could go as low as £40 per tonne or even fall further quite quickly according to some sources in light of the ongoing weak OCC market.
The differentials between the two markets (China and non-China) is also causing consternation as to whether or not to bother with sorting used cardboard to ensure it is of very high quality and with less than 0.5% contraries in order to meet Chinese market criteria. A number of businesses had invested in new sorting equipment to meet Chinese quality standards. Some in the sector consider it is not worth sorting for China in the short term although others say that ‘quality material will always find a home’. One exporter emphasised that it still made sense to maintain standards because other destinations are also requiring improvements in quality and that Chinese orders are likely to increase later in the year.
There is little sign of relief at home as UK domestic mills are said to be well-stocked, particularly from retail contracts, and continental mills are also said to be well supplied.
There are mixed messages from experts in the sector but the consensus appears to be that a difficult few months lie ahead, even a difficult year and a half.
One sector expert said: “There is increasing pressure and while there is no evidence of difficulty in moving material, prices are in decline. There is a bumpy ride ahead for 18 months.”
Another remarked that prices for used cardboard could soon be at their lowest level since the recession when the market crashed at the end of 2008.
Some observers see light “at the end of the tunnel” with new mills coming on stream in Eastern Europe and other mills coming on stream outside of China in South East Asian states. And, they consider that the UK should aim to keep its quality levels high as this has and will continue to show dividends in the export market.
The renewed trade war between China and the United States is not seen as having a direct impact on the market – Chinese mills have preferred to buy material from the US recently because of its longer fibre quality, even though a low tariff is imposed.
The situation could change if higher tariffs are imposed on waste paper sales to China for material from the United States but several UK views were that while this might only mean a short term boost in demand for the UK, it would simply unsettle already volatile markets.
Charges and finished product
Reduced prices are also prompting discussions of levying charges rather than offering free collections. This can be difficult if there is no agreement in place for charges because of the paperwork involved and but is seen quite likely now especially more small loads of used cardboard are involved.
Domestic paper mills also face having to drop prices for their finished product made from used cardboard. Because of high demand for finished product in recent years there has been some disconnect between the used and new price, now however it is thought that retailers and board users will be pressing mills for price reductions which in turn will also put pressure on the amount paid for waste paper.
In contrast to the used cardboard price, mixed paper prices are said to be firm for better quality material or even increasing because of a demand in particular for volumes to be sorted for the recovery of used newspapers.