The release of at least some suspended Chinese scrap paper import licenses for 2017 sparked a fire in old corrugated (OCC) export markets, although the rapid run-up could be short-lived, traders reported near the end of October.
The wildcard in the market, as the year approaches its final lap, is the status of import licenses for 2018, which have yet to be issued.
The situation at the end of October is this: At least some Chinese buyers resumed OCC purchasing around mid-month, giving U.S. suppliers a short window during which to get shipments on the water for arrival in China by the end of the year.
“Depending on where you’re shipping from, you have from the middle to the end of November to land your material in China in time to clear customs,” one broker noted. “We’ve seen a flurry or purchasing in the last couple weeks.”
During the second half of October, export prices for OCC generally climbed by $30 to $40 per ton, although some traders reported jumps approaching $50 per ton. One broker, noting that Chinese mills, with no imported OCC available, were paying around U.S. $450 per ton for domestically generated tonnage, said, “When the floodgates open up in China, we could see prices way higher than anything we’ve ever seen before. With the price of domestic OCC at $450, as soon as you open the door to American OCC, which is a better quality, you’re going to see a massive spike in the import prices.”
Domestic U.S. prices meanwhile were reportedly unaffected by the export price improvements. In fact, some traders said, although domestic containerboard mills were running strong, most had ample inventories and were not aggressively seeking tonnage.
“A couple mills in the Texas area this month asked whether I would consider taking a $5 drop on my premium,” one broker reported. “I was okay with it. It was either that or nothing.”
Another supplier said mills were buying additional volume, and would probably continue to do so, as long as the price is right.
“There is no indication of (buying) slowing down, other than some of the premium prices coming off,” he said.
Sources said domestic inland prices, such as in the Midwest, continued to hold higher than export markets, while export prices in major port regions have overtaken domestic prices.
For example, one broker said, mills in the Chicago region were paying around $120 per ton FOB, while the export price was $120 FAS.
“You’re going to net $10 more by selling domestic,” he said. “Traditionally Midwest recyclers want to see a $5 premium over domestic to even consider exporting.”
Meanwhile, traders said the reinstating of at least some import licenses opened the door for material that arrives by the end of the year. Nobody seemed to know when next year’s licenses would be issued.
“I would anticipate the end of the November to early December, but nobody really knows what’s going on,” one exporter said. “There could be another couple weeks in November, and maybe in December, when nothing is going to move to China.”
Others, however suggested that some exporters might put tonnage on the water in anticipation of securing an import license for next year.
“You can pretty much assumes that the big guys like America Chung Nam and Ralison are going to get permits,” one source said.
Some traders said despite the chaos created when China announced its National Sword quality initiative, the measure has worked, as recovered paper – particularly material emerging from material recovery facilities (MRFs) – has become a lot cleaner.
“This has been tough on the recyclers, but the quality has gotten so much better,” said one broker. “I am hoping that China maintains its demand for quality. Not too long ago people would say, ‘If you don’t want it we’ll sell it to China.’ That doesn’t work anymore.”
To improve quality, MRFs have had to slow their sorting lines and add manual sorters.
“It’s costing them money but it needs to be done,” the broker said. “Hiring more sorters cost money and adding optical sorting systems is not cheap. The MRFs are going to have to let their municipalities know that the party is over. They are going to have to renegotiate their municipal contracts to cover their higher processing costs.”
Most sources speculated that China will not back down on its plan to ban mixed paper imports at the beginning of 2018. Already, most exporters are not taking the risk of sending mixed paper to that country.
“A few of the big players are moving mixed paper to China, but we’re not going to take the chance,” one exporter said. “There is no real domestic market either, so mixed paper hasn’t seen the comeback we’ve seen on OCC this month. I have shipped a few trial loads of mixed paper because some U.S. mills have been excited about how cheap it is. But for the most part, most of the trials didn’t go so great.”