Clear or cloudy horizon?

Pulp & Paper, Aug 2005 by Cook, Chris, Mies, Will, Rudder, Greg, Smith, Bryan, Vasconcellos, Sandra

The export share of the U.S. recovered paper total continues rising, representing 28% of total exports, U.S. mill consumption, and U.S. mill stock in 2004 - up from 22% in 2000. At the same time, collection of U.S. recovered paper for U.S. and the export market has grown an average of 1.6%/year since 2000.

Pricing for the two major-volume U.S. recovered paper materials - old corrugated containers (OCC) and old newspapers (ONP) No. 8 - hardly changed in the first half this year from the end of 2004. The U.S. average at the f.o.b. seller's dock for OCC was $86/ton in June compared with $87.50/ton in December 2004, according to Pulp & Paper Week. ONP No. 8 was $84/ton in both December 2004 and June 2005. Still, these levels are higher than their historical average trend prices the last 10 years.

Market contacts expected levels to remain largely in line the rest of this year from where they were in June. They cited reduced output from containerboard and newsprint mills early in the second half. But they also noted that a key to possibly raising U.S. levels would be China.

China bought 50.5% of total U.S. recovered paper exports in the first quarter this year. Buyers for mills in China said they were closely watching their U.S. purchases because of being able to buy tons from Japan and Europe, and because of soft board market pricing in China in the first half.

In the U.S. the first half this year, the material that dropped the most in price from the end of last year was sorted office paper (SOP). Contacts said strong collection - especially from the growing supply base of paper shredders - and slower export markets opened the door for lower pricing. SOP fell from $122.50/ton in December 2004 to $89.50/ton in June 2005, its lowest average for U.S. mills since October 2003.

COMTAINERBOARD

Market softens in first half

After 42-lb U.S. unbleached kraft linerboard rose $95/ton in five months last year, North American producers tried a spring increase this year that failed. Linerboard prices then fell $15/ton in May, and overall box demand softened from February through May.

The largest six U.S. containerboard producers as of May 31 also were hit with an anti-dumping tariff on their kraft linerboard of 16% to 65%. By July, hardly any U.S. kraft linerboard was moving to China, forcing some suppliers to chase new export business. U.S. exports of linerboard have declined 1.4 million tons from their peak in 1998 to 2004.

The key driver in the first half U.S. containerboard price decline was box demand. Actual U.S. box shipments were down 1.2% year-to-date through May. At the same time, U.S. containerboard mills hardly reduced production year-over-year. Year-to-date through May, U.S. mills operated at an average containerboard rate of 93.0%, down barely from 93.3% from 2004's rate through May, when one linerboard price increase had already been implemented.

As of June this year, transaction pricing (before volume discounts) for 42-lb kraft linerboard in the U.S. East was $430-$440/ton after declining $15/ton in May. Pricing on 26-lb semichemical corrugating medium in the East was $390-$400/ton, down $25/ton in May.