- We recently attended the 2021 International Containerboard Conference (ICC): Insights were gained across Europe, North America, and Asia. In this report, we highlight key insights impacting Global Recovered Paper (RCP).
- The global OCC markets have been strong, with the US and Europe registering exceptional strong growth in domestic OCC demand during 2020/21: Demand has been driven by the paper packaging sector. Additionally, OCC recycling efficiency has declined due to the pandemic and e-commerce. Supply has been further impacted by OCC trade flows and logistic constraints.
- Dynamics in end user corrugated box made for the perfect storm to lower OCC recycling efficiency: Corrugated boxes are consumed by three segments. Residential (1), which has a relatively low recovery rate. There are more contaminants, which increases the sorting costs. Due to the pandemic and growth in e-commerce, box demand growth from Residential increased significantly; Industrial (2) and Commercial (3) both have a high recovery rate and lower sorting costs. However, due to the pandemic, box demand growth declined.
- Strong US domestic OCC demand, up 7.6% YTD (2020: +4.0%): US average inventory levels remain below historical levels, currently c.6.0 days (2020: 6.5), compared to 7.6 in 2015. To secure OCC supply, many paper mills have been prepared to pay a premium of USD 30-50/t (20-yr average: USD 10-15/t).
- Western Europe RCP exports are down over 60% since 2015: This has been driven by China’s RCP import ban; tightening Asian import regulations and continuous growth in domestic demand for RCP, especially OCC. Domestic OCC demand in Western Europe is expected to increase by 5.3% in 2021 (2020: +2.7%).
- Recycled fibre shortage in China has driven higher containerboard imports and a reduction in containerboard capacity: China significantly increased its containerboard imports during 2018-20 (over 60% from Other Asia). This helped tighten the RCP markets in Other Asia and Europe.
- Other Asia has stepped up in China’s place, having registered a significant increase in OCC imports in 2021: This has been driven by strong demand from paper packaging; Chinese recycled pulp demand; and Asian domestic collection has been adversely impacted by the pandemic. Trade policies around wastepaper bans remains uncertain in Malaysia and Vietnam. If implemented, this could cause ST downward pressure on OCC prices.
- Recycled share of global containerboard is expected to increase from 77% in 2020 to 78% by 2023: Asia, North America, Europe, and Oceania will all see significant increases in recycled capacity.
- Bottom line: China will continue to impact the global RCP markets through its recycled pulp and paper and board imports. Other Asia will see further growth in RCP demand; however subject to tightening controls on RCP imports. Forecasting recovered paper prices remains difficult and further bumps in the road are expected. Considering new capacity coming online in favour of recycled containerboard, coupled with insufficient fresh fibre entering the system, we expect OCC prices to remain elevated. This is likely to provide support to testliner prices and accordingly kraftliner prices.
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