The year ahead – plenty to think about

As summer ended and the year wound down to the close of 2016, two major issues stood out amongst the usual host of factors that affect the UK recovered paper market.

The first is Brexit and the knock on effect of the weaker pound on the price of recovered paper exports and on paper and board imports. The second point is the ever increasing price of shipping to Asia. Although both factors directly impact exports, the follow on from these issues have directly increased recovered paper prices for domestic mills. However, the double edge of this sword means imports of paper and board are more expensive, along with cheaper exports of the same, means that domestic mills have favourable conditions to try to maintain and increase paper and board prices. Maintaining good utilisation on paper machines due to good order books, could see healthy profits, depending on how dramatic the effect of seemingly higher raw material costs.

Amongst all the variables, export prices of recovered paper increased as the pound sunk. Higher prices do not always lead to higher profit, but the increase was welcomed by many.

The winding up of the Hanjin shipping line was the start of a seemingly inexhaustible number of price increases for Asian shipping. Many on the receiving end of these price increases are questioning the validity of the increases in a market that even after the demise of Hanjin is in over supply. It remains to be seen why shipping lines cannot apparently provide enough realistically priced capacity to its long suffering customers.

As we enter 2017 there are conflicting messages that will surely lead to continued worries about volatility. On an upside we see Chinese mills and observers reporting medium to low stocks of OCC and mixed. Healthy order books for liner and duplex boards stretching into and past Chinese New Year should give some confidence of continued demand and prices remaining strong. A relatively good winter means moisture levels may not be as high as past years so the UK can claw back some of its poor reputation for moisture laden recovered paper. Good domestic demand from UK mills should keep pressure on demand and prices.

Hopefully, regardless of when Article 50 is triggered, the uncertainty surrounding Brexit means the pound could remain weak and keep the UK in the limelight as global purchasers of material. However, the dark cloud for early 2017 is ever increasing shipping costs. There is a limit as to what the Asian mills can support against current liner costs. With GRI’s being announced of $300, any advantage of the beneficial exchange rate will be wiped out and Asia will take much of its business elsewhere which could start prices sliding down. If the shipping lines can resist taking their increases to unsustainable levels, then the first quarter of 2017 might just be a really great start to the New Year.

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