Paper sector predicts more stability in November

However, the UK recovered paper sector still expects short-term difficulties in finding markets for some material, especially mixed paper.

This week has opened with the recovered paper sector expressing astonishment at the price falls during October. Some have described it as a “bloodbath”, others say they have never seen prices fall as quickly, while some in the sector say the price reductions are fairly similar to the price falls of 1996.

Various issues are currently under discussion within the waste paper sector including how to impose higher charges for collections, future demand from Chinese mills, demand from UK mills and whether material should be stored.

Charges

Under particular debate is whether or not it is feasible to push up collection charges for waste paper. One merchant told letsrecycle.com: “To haul and handle the material costs more than we are getting for it. Collection charges are the only way as there is no point in accepting a loss.”

Another merchant commented that the market was one for “commercial judgement” by independent businesses. He said: “If you think that the fall in prices is short term, you might decide to store material. But, if you think it is for longer, it might make sense to take losses now and look at operating in a market with lower prices.”

Other merchants have said that their customers will simply put paper and card out as waste rather than pay higher charges.

David Symmers, chief executive of the Independent Waste Paper Processors Association, said: “This downturn is every bit as bad as 1995 but slightly different. When the slump came then merchants had full stockyards so had to write the value of their stock down. Now it is harder to get an order. My advice is that collection charges have to be adjusted in line with supply and demand.”

China

Many waste paper merchants in the UK have independently, or through brokers, sent large amounts of material overseas, particularly to China and are now seeing order books dry up and some orders cancelled. One merchant said: “This is all a good move for China – they throw the market into a complete panic so that people will take what they are offered.”

Others are of the view that the Chinese market has simply reacted to overstocking and the economic downturn and that demand will return but at a lower level. And, there will be some closures of smaller mills in the New Year because of licensing restrictions within China, on grounds of environmental performance. This could have some impact on demand or change existing buying patterns.

The main players in the UK for China, ACN – which serves Nine Dragons – and Mark Lyndon Enterprises for Lee and Man, are of increasing importance in their role in the marketplace. Both companies are expected to be buying substantial tonnages in November, albeit at lower prices.

ACN has continued buying through October in contrast to Mark Lyndon which has reduced its buying activities substantially.

ACN is expected to be fully active in the market in November and honouring deals that have been agreed. The company is understood to be fully committed to the UK market.

Paul Briggs, commercial director for Mark Lyndon, said that for Lee and Man Paper Manufacturing, Mark Lyndon would be back in the market as normal for November. “I expect there to be consistent, steady buying,” he added.

UK mills

The UK board mills are expected to be honouring the tonnages they have commitments for, but downtime and engineering works are possibilities at some of the mills. The autumn is a busy time for the UK mills so there is a desire to keep production going, as well as a recognition that more used material traditionally becomes available in quarter four.

Prices

November prices are still to be determined but there is an expectation that UK mills are likely to cut their prices for used cardboard further, while the export market could settle somewhere above £20 a tonne and below £30 a tonne.

Export interest will be boosted by the weaker dollar and lower shipping rates. Mixed paper prices are expected to fall further although material is said likely to move at lower prices. However, some in the sector claim there will be a need to landfill some mixed tonnages this autumn.

Overall, the view in the sector seems to be that the market will find its bottom level and settle for a while.

However, potentially a further weakening in prices could be expected during December to January as the pre-Christmas demand for material ends and more tonnage is generated.

Within the recovered paper sector, there is some consensus that any notable pick-up in prices will not come before the first few months of 2009 and, until then, that charges will have to be raised, in line with the “polluter pays principle”.

PRNs

The packaging waste recovery notes (PRNs) issued after mills have reprocessed old cardboard boxes into new material could start to become more of a factor in market prices. Recently these have been of a low value, around £2, and some in the sector suggest that these could rise to £7 or more in value because less material is being reprocessed. However, others suggest that this could be an attempt to talk-up the PRN value.