Finding a balance

Recycling Today, Oct, 2005 by Dan Sandoval

Paper stock markets have been on a bit of a wild roller coaster ride throughout the past two years. Moving into the tail end of the year, markets seem to be calming somewhat. While some of the dynamics that helped propel pricing to higher levels haven't dissipated, more paper recycling companies have adjusted their businesses to reflect these changes.

China, which has captured the fancy of the U.S. business world, continues to play a major role in the market. That is unlikely to go away. However, suppliers are not being caught off guard by a sharply higher buying level, which should keep supply and demand in better balance.

The North American economy, the driver of the world's economy, continues to show fairly decent strength. Mill closings, which roiled the paper stock markets throughout the past five years, appear to be easing. While mill closings continue and paper machines are still being taken off line, these instances are much less frequent than they were earlier in the decade.

However, just because the number of mill closings is lessening that doesn't eliminate some of the concerns that North American papermakers have: Demand for many grades of paper remain flat at best, and new capacity additions are few and far between. In fact, according to the American Forest and Paper Association, Washington, capacity will expand by 0.5 percent this year, 0.3 percent in 2006 and 0.2 percent in 2007. That translates into an annual capacity increase of 0.3 percent. In comparison, during the 1990s paper and paperboard capacity increased at an average annual rate of 2.2 percent per year.

Finally, while more people in the industry are adjusting to the new industry dynamic, unforeseen issues can create temporary havoc in the marketplace. The recent Hurricane Katrina and the subsequent flooding have created some temporary problems as supplies from the Gulf Coast area disappeared, at least for the short term.

It is likely that other cases will crop up, whether weather-related, economic or political in nature. While this creates some uncertainty in the short term, for those in the industry who are flexible, these are only temporary roadblocks.