The decline in prices for used cardboard comes in the wake of a slump in demand from South East Asia and India and now price falls in Europe, amid increasing concerns about energy costs and gas supplies.
Views from waste paper businesses generally are that the situation is not a “market crash” but more of a “big softening in demand” caused by high mill stocks and cost concerns. This is rippling down the supply chain causing price falls, a lack of orders – as well as postponed and cancelled orders – and new enquiries at lower prices.
One UK expert said: “The honeymoon period of the post-Covid boom is coming to an end. Prices up to the £170 level for cardboard are not sustainable and now we are seeing this market correction. Consequently, with prices softening some mills are reluctant to place orders in a falling market.”
Another noted that a possible saving grace for the market is that “lower generation levels of used material will help to stop a crash but they won’t prevent a softening”. Another recycler agreed, saying that “arisings are dropping very fast ahead of the holiday period”.
Market views on pricing levels are generally that the value of used cardboard has now fallen below the £140 per tonne mark and is heading towards £130 and could go even lower. There are typically at least two grades of used cardboard described in various ways – 90/10 and 95/5; standard/high grades or inspection/non-inspection – but overall there has been a narrowing of the differential between the two over the past year.
A lot of attention is being paid to demand from the European Continent where demand in recent month has kept prices high, in contrast to slightly lower prices in deep sea markets. Mills in the Netherlands, Germany and Austria are all reducing their prices paid for used cardboard and at the same time cutting some orders. There is also talk of some mills increasing their claims on material, “unjustly” according to a few exporters.
For Germany a big question remains over gas supplies and whether Russia will reinstate supplies via the Nordstream 1 pipeline after a maintenance period concludes on 21 July. If it remains closed and should German mills face official restrictions on whether they can operate, Germany’s mills and their customers might opt to buy in finished reels from other parts of Europe and even from South East Asia so boosting the rest of the market.
What we’re seeing is this general softening in South East Asian demand
For recovered paper merchants the situation is posing a number of challenges, not just on the financial front. There is concern over whether extra short storage on sites might be needed for a few weeks until the market settles. This could mean that the Environment Agency having to offer storage concessions, something which was a feature during the pandemic.
Simon Ellin, chief executive of the Recycling Association, said: “What we’re seeing is this general softening in South East Asian demand which has now dropped off and so given European mills reason to drop their prices. I don’t see this as a crash, it is a softening.”
Dr Ellin continued: “Pockets of demand are there in Europe and some prices for mixed paper are now above OCC. Tissue grades and news and pams remain strong. But, overall generation has significantly dropped and so demand will remain as you have to remember that 85% of Europe’s mills use recycled fibre. So yes while we are seeing a softening now, Europe, South East Asia and India will be back, albeit at the lower prices.”
One merchant in the north said that the market currently is one where prices have been “dropping every day with new orders being pulled – and new orders are cheekily low. European prices are now similar to deep sea export markets.”
Now we are seeing a sharp decline in demand in the Asian markets
Pankaj Chowdhary, managing director of Ekman Recycling UK, said: “Until 10 days ago markets such as Indonesia were buying. Now we are seeing a sharp decline in demand in the Asian markets as mills have good stocks of finished products and there is reduced demand for material for processing.
“It all now depends on Europe and where prices settle but there is a lot of concern in Germany about the gas supplies and energy costs with European mills now dropping their prices.”
Colin Clarke, managing director of Winfibre UK, a major exporter to south east Asia, said: “Over the past few weeks we have seen domestic and European mills reducing their prices to be more in line with Indian and Asian mills.
“They have one eye on the downstream stock of finished goods, partly because of the recent lockdowns in China, and the lack of demand for more packaging materials in China. In Germany and Austria there is concern about costs and the situation with regard to gas supplies.”
One exporter to Germany said that it had to be realised that in the face of a range of cost increases, a price of £160-170 per tonne, “is not sustainable, all the costs including fuel need to be taken into account”.
And a south east Asia specialist remarked that the recovered paper sector is “in a bit of a delicate period as there are no orders out there. There is a glut of material in China which is closing its door to new material. European mills are pulling their orders and I think we could even see finished product being imported from south east Asia; there are lots of stocks out there at cheap prices as mills want to move it.”
Other topics under discussion with regard to the used cardboard market include the situation with regard to the export PRN, the PERN. There is an expectation that this might rise to the £15 level from £10 because of a shortage of paper PRNs, although there are conflicting views over this. There is also concern among some exporters that not all brokers are passing on the value of the PERN.
As one Midlands recycler told letsrecycle.com: “Mark my words, we are in for a seriously bumpy roller-coaster of a ride over the next 18 months.”