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Prices for old corrugated container (OCC) imports into Southeast Asia and Taiwan were mixed in the week to Thursday August 15, with brown grade exports from Europe and Japan rising, but falling for exports from the US slipped due to the ongoing packaging slump in China.
Overcapacity in the packaging industry in China has led to dwindling demand for recycled pulp manufactured in Southeast Asia, where most plants are operated by Chinese parent companies, with output shipped back to feed their machines or to be sold on the Chinese market.
China-affiliated recycled pulp mills in Southeast Asia, especially Thailand, usually pay top dollar for US premium brown grades, such as double-sorted OCC (DS OCC 12).
With OCC demand from the recycled pulp plants subdued, suppliers sought to sell US tonnages to regional board mills at discounted prices.
As a result, sellers’ offer prices were split – DS OCC offered to China-based customers was priced at $220-230 per tonne, while offers to regional board manufacturers was below $220 per tonne.
In Indonesia, where prices are $5-15 per tonne higher because inbound recovered paper cargoes are required to implement pre-shipment inspection at the country of origin, customers reported that US DS OCC were offered at two different levels.
“US DS OCC offered by vendors who export to China-based buyers was priced at $230-235 per tonne during the recent two weeks, and others were $225 per tonne,” a major Indonesian buyer said.
“We have reduced purchasing volumes of import OCC in line with sluggish box demand in the Indonesian market. Consumers cut back on spending, resulting in a decrease in food and beverage consumption. Large mills in the country have shut down machines to cope with the poor packaging consumption,” the buyer added.
According to the buyer: “We see an increase in the availability of OCC collected domestically, a proof that the country’s small and medium-sized plants are taking market-related downtime due to the packaging slump. We have therefore decided to step-up purchases of local OCC and cut import OCC tonnage, which also enables us to haggle down prices for the latter.”
A large Thai producer has halted purchases of OCC and mixed paper imports for the past four weeks, which was a major setback for suppliers.
The Thai producer had their mixed paper cargoes rejected by customs in Thailand several weeks ago, with their inbound OCC goods subsequently subject to full inspections by the customs authority, according to a vendor.
“That leaves a hole in the market. We have no clue why the big-volume customer stops buying import OCC, apart from mixed paper,” the trader said.
Sources reported that the overseas purchasing arms of major Chinese producers had reportedly paid $180 per tonne on a FAS basis for DS OCC on the US West Coast, and other traders paid $173-175 per tonne.
A Vietnamese customer said that DS OCC volumes were readily available and they managed to haggle down prices for the grade.
As of Thursday August 15, DS OCC was sold for $220-225 per tonne to China-based buyers in Southeast Asia; however, regional board mills in Thailand, Vietnam and Taiwan paid $210-215 per tonne for the grade.
Prices for benchmark US OCC 11 were $205-210 per tonne, down by $5 per tonne from the previous assessment three weeks ago.
Restricted availability and a lack of shipping space and equipment caused prices for OCC exports from Japan to the region surge.
Following a jump of $10 per tonne in mid-July, prices for Japanese OCC continued to climb, up by $5-15 per tonne to $195-205 per tonne on Thursday, with the low end of the range paid by buyers in Taiwan and with the higher end of the range paid by Southeastern customers, mainly Vietnamese mills.
Japanese OCC prices have followed US brown grade prices in the past and have typically been equal to or $10 per tonne higher than European OCC.
With an intention of catching up with Japanese OCC prices, suppliers pushed for price hikes for European OCC.
A major European seller noted that mills in region had low OCC stocks and would need to replenish their depleted inventories given that Japanese OCC has became so expensive.
But buyers pushed back, citing weak packaging demand.
In the end, the premium European brown grade, OCC 98/2 was sold at $170-175 per tonne, edging up by $5 per tonne.
The benchmark European OCC 95/5 was $160-170 per tonne, widening upward from $160-165 per tonne three weeks ago.
In China, the price of premium brown grade, pre-consumer and import OCC was assessed at RMB 1,763 per tonne in the week to August 15, climbing by RMB 57 per tonne from three weeks earlier.
This was equivalent to $200 per tonne, excluding 13% value-added and RMB 150 per tonne in logistic costs. The Chinese premium brown grade is comparable to US OCC.
Rainy weather in northern China and high temperatures in southern regions have led to a shortage of OCC supply and generation has suffered.
“[Recovered paper] RCP suppliers are appealing to us for a price increase, citing the high temperatures that have impacted outdoor RCP collection activities,” a large paper mill said. “They are also voicing concerns over the slim profits and the high labor costs, arguing that the low OCC prices will result in a further reduction of generation.”
Some paper mills in northern regions were also experiencing a shortage of OCC supply due to the rainy weather.
However, the concentrated release of new capacity this summer has led to a rapid increase in demand for OCC. According to incomplete statistics, since June, new capacity of containerboard in China has reached 2 million tonnes per year, which has contributed to the rise in OCC prices.
Another source noted an additional reason for the price increase. When August began, Chinese paper mills started to push for price increases for finished paper in preparation for potential Mid-Autumn and National Day orders, which has led to a rise in OCC prices as well.
But the push to raise prices for finished paper has been challenging, with most downstream customers either rejecting the price increases or accepting only a partial rise. Multiple paper mills have stated this week that they have not seen an increase in finished paper orders.
High US OCC costs, low finished paper prices and weak demand in China have led to a loss of vitality in the recycled pulp market this summer.
Recycled pulp from Southeast Asia was offered in China at $285 per tonne, unchanged from three weeks earlier, but business was slack.
Chinese paper mills have reduced their use of recycled pulp, causing Southeast Asian pulp mills to have to decrease recycled pulp production and even shut down factories.
According to sources, a recycled pulp mill in Thailand, owned by a major Chinese packaging producer, was shut down at the end of July. The plant, which commenced operations in the first quarter of 2021, had a capacity of 200,000 tonnes per year for dry grinding pulp and 200,000 tonnes per year for wet pulp. The remaining OCC stocks from this plant were relocated to another joint venture factory investment by the Chinese company, which is closer to the port and has a cost advantage.
A recycled pulp mill in Malaysia was also closed in May.
In Malaysia, operating recycled pulp plants is no easy task. US OCC costs in Malaysia are higher than in Thailand due to additional costs incurred by the country’s pre-shipment inspections and logistic issues.
A recycled pulp mill in Malaysia owned by a Chinese paper mill said: “Recently, purchasing US OCC has been challenging. We are facing a shortage of shipping space and high freight rates. The suppliers’ quotes are significantly higher than our expectations.”
In addition, a source noted that many surviving independent recycled pulp producers in Southeast Asia are now merely sub-contracting to Chinese mill. They no longer produce and sell on their own. They only do contract runs on a basis of a per-tonne fee instead.
Learn how to monitor packaging prices using cost and price indices and understand the underlying cost drivers, from material cost to labor, energy and more. Examples include cartonboard, liquid container and paper bag.