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Market Perspective: Kelly McNamara, Numera Analytics

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Market conditions often change and cycle more quickly than the evolution of infrastructure and development of key business relationships. In order to remain relevant, paper recyclers need to have a long-term strategy that acts as a foundation for making short-term business moves. At the ISRI Paper Stock Industries Chapter Winter Event that took place along with the ISRI Winter Board and Governance Meetings, Kelly McNamara of Numera Analytics shared her thoughts with the industry. Here are some of her key take away messages.

1. China will continue to enforce the strictest standards. While China’s goal is to minimize the import of garbage and maximize the consumption of domestic fiber, relying solely on domestic fiber by 2020 will probably create a fiber shortage. To avoid this outcome, the Chinese should recognize the value in OCC and add it to the catalogue of acceptable “solid waste” items that is expected to be present later this year to the WTO. Consequently, a gradual reduction of imports seems more rational and the plan to ban imports of all recovered fiber by 2020 seems less likely.

2. Globally, containerboard demand is expected to grow at just over 2% per year. Simultaneously, global capacity expansions are on the rise and are expected to outstrip demand over the next 3 years. The expansion in containerboard capacity in other areas of Asia, outside of China is reflective of two things:

a. Growing manufacturing outside of China; and

b. Restrictive Chinese recovered fiber import policies which allows others to be more competitive in terms of inspections and quality expectations.

3. Growing demand for OCC will put upward pressure on prices in the long-term as a result of capacity growth and recovered fiber based containerboard making up a larger share of the containerboard market. It is somewhat of a cautionary tale, the low price of OCC in NA and the “planned ban” by China is sending the message (perhaps a misguided one) that low cost OCC is here to stay. Ultimately, what will drive the price of OCC is the need for OCC as a fiber resource in the production of containerboard and that need is expected to rise.

Kelly also mentioned that Numera Analytics has seen a remarkable shift in OCC quality occurring in North American markets. It hasn’t been statistically verified but China’s demand for 99.5% pure material is a raised bar that everyone in the market is making progress to attain.

If you would like more information or have questions, feel free to contact ISRI Research Analyst for Commodities Bernie Lee

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