The waste paper sector continues to remain under pressure from weaker export demand and some machine down time at the UKs cardboard mills.
At the same time, the Chinese Government inspection agency CCIC is making more checks on UK waste paper depots and sorting plants in the UK.
Waste paper merchants report that they are facing some of the most difficult market situations since the crash in prices which happened three months after the last Olympics in Beijing in 2008. While the general view today is that the market has not crashed, there is a view that there is nothing on the horizon for the rest of the year to offer any hope of an upturn.
The fall in prices comes as commodities across the world are seeing considerable volatility. Pulp prices have fallen over the past year and supplies to the UK are down an estimated 10%. However, one bright note may be that there are reports of increased wood demand in the US where more starts have been made on new homes last month than for four years.
Most in the UK waste paper sector expect the market to remain very difficult over the summer with a consensus that the bottom is close although may not have been reached yet with the potential for a few pounds more to be shed from the mid grades and bulk grades. And, there is concern that with collection costs rising, if prices for used cardboard fall much below 70, some collections will not be viable with some collections likely to involve charges to customers.
Market
Concerns about the current market were aired by Simon Ellin, chief executive of the Recycling Association, who said that while the sector had seen this before, it was no easier for the industry. We are into a period of depressed prices in relation to what we have got used to over the last couple of years. To some extent this is a double-edged sword as even though volumes in the marketplace are low, partly because consumers are buying less and there is less printing of advertising material, prices for waste paper are also low.
Dr Ellin added: One of the difficulties the sector faces now is getting customers to understand the reality of the weaker markets. They have become used to receiving high prices for their material from our industry and now we have to get the message over that the material has a significantly lower value.
In the UK, mills are not seen as running at full capacity and are well stocked and the boost to the sector from the new SAICA cardboard mill in Manchester has not been fully felt because the plant is not running at planned capacity yet. This is in part due to problems with its effluent plant which are still being tackled.
Overseas mills have good stocks of raw material and have high levels of finished product although substantial volumes are still being exported.
Merchants
For waste paper merchants and waste management companies any further falls in the value of used cardboard are seen as likely to cause collection difficulties as these start to become uneconomic.
One merchant in Eastern England said: While everyone likes high prices we are more happy if we can make a fair margin even if overall prices are lower but when they start to move down towards 60 it may be that we cannot cover our costs. We would have to put in charges for smaller collections and this can be difficult.
Another merchant in southern England said that the situation had been exacerbated by the higher prices seen over the past two years and the entry into the market of waste paper brokers who have raised customer expectations too far in terms of price and service performance.”
He continued: You have to remember that providing a first class service as well as paying for material comes at a cost and at the end of the day everyone needs a margin from what the mill will pay. The middleman has made things tougher and everyone will start to get squeezed because of this.
Reductions
One mill source said that he believed that the market was getting towards the bottom but there would be some smaller reductions before a plateau might be reached later inAugust. He noted that the weaker prices should encourage waste management firms to produce better quality material:What we need to see is more work on quality all round to add extra value to the product, especially mixed papers.
The UK paper sector is also facing structural changes with staff and facilities having to bed in to new arrangements. These include DS Smiths acquisition of SCAs packaging and recycling business which includes a materials recycling facility in Southampton and separately (confirmed today July 19) SCA acquiring Georgia-Pacifics European tissue business for 1.32 billlion Euros, (see letsrecycle.com story)
In terms of the export market, sector analysts said that Chinese mills have not actually seen great reductions in the prices paid for waste paper. This is because the freight and currency element of the total paid for material has increased sharply with shipping lines charging more. As a consequence, there is expected to be more pressure on the lines to reduce their charges although as yet they are said to be standing firm.
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