A Challenging First Half Year

So far, 2019 has been a challenging year for the recovered fibre sector says Simon Ellin, Chief Executive of The Recycling Association. A combination of both falling supply and demand has suppressed prices to levels we haven’t seen for many years. This supply and demand has been driven by a weakening global economy, but we have also seen an increase in regulations on imports from key destinations.

With 2018 seeing OCC prices regularly above £100, the year started with prices ranging from a more normal range of £85 to £95. By May, the OCC price had slumped to £50 per tonne. The cause of this was a mixture of factors. A key factor was that Chinese Government mill import quotas were lower compared to previous years. With US material particularly cheap, this also meant that the Chinese mill groups were happy to fill their quota more from there than UK and Europe.

Although there are strong indications that China will continue to accept imports of recovered fibre beyond the end of 2020 as originally thought, we have to accept that this will be at lower quota levels than before. It therefore remains essential that we provide a high-quality product to the market to ensure this vital destination remains open. Indeed, with countries such as Indonesia and Vietnam also imposing tougher inspection regimes, quality has got to be the focus or we end up losing essential export markets altogether.

With Indonesia threatening 0% contamination levels, this would effectively become a ban. The Recycling Association is working with other organisations, including the Institute of Scrap Recycling Industries in the United States, to lobby the Indonesian government to accept a higher contamination level using workable standards that at least allows for some unavoidable out-throw. We also shouldn’t forget the impact of the global economy on the recycled paper market at present. Demand for goods is down across the world and this means there is less need to supply packaging to protect them. Until we start to see some pick up in economic activity across the world, it remains likely that prices for recovered fibre will be suppressed.

However, we have seen a small pick up in recent months, with OCC prices in the range of £55 to £70 at the time of writing. This is still way below the average of the last five years, which has been closer to mid-£80s to early-£90s. This increase can be explained by a release of new Chinese quotas, plus slightly better demand from Europe that was aided by a weakening pound. Domestic mills have also kept purchasing ticking over prior to the summer holidays in particular.

For mixed paper, it has been a year of low demand. This grade is now banned by China of course, and Vietnam has announced its intention to ban it by the end of 2021. Inspection agency Baltic Control is not currently inspecting loads of mixed paper to Indonesia. We don’t know if this is a long-term ban, but it could indicate it is and has added to the flat market. European and UK mills have taken the bulk of mixed paper, with some also heading to Asian destinations. Prices have tended to remain low though, with low £20s to £30 the norm.

Packaging grades have been aided by a high Packaging Recovery Note price this year, with over £20 per tonne seen at times. Although this has dropped back in recent weeks to below £10 at the time of writing, it has provided some essential support to the market. It has also encouraged some companies to become accredited as it was now in their interest to do so, unlike when the value was a pound or so. However, the recent falling PRN/PERN price has also had the effect of pulling downwards on the price of OCC in particular.

Some other grades such as News & Pam, Multi and SOW have tended to hold up in price this year, due to the different dynamics of these markets. News & Pams though has eased lower in recent months, with demand falling a touch across the board. I understand that European consumption is down 22% this year, which will help to explain this smaller demand.

Looking forward, I expect the rest of the year to remain challenging and my crystal ball gives little indication of what we will face beyond that. What I do know though is that we have to keep producing a quality product to ensure we keep our destinations open. I also know that our members are working very hard to achieve this. I also know that we are a resilient industry that has been through tough times before and will again. We will bounce back again when conditions change, and as an industry, we are doing everything we can to be ready when the good times return.

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