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Sellers were thrilled when a major China-affiliated company agreed to pay prices of $186 per tonne and $142 per tonne respectively for imports of US double-sorted old corrugated containers (US DS OCC 12) and European OCC 98/2 into Vietnam in the week started Monday August 14.
Suppliers have been inspired by the outcome of talks with the buyer for the latter’s monthly restocking of OCC imports, used as furnish for manufacturing recycled pulp and packaging materials. They said that the prices are higher than expected initially, at a time when other customers in Southeast Asia (SEA), Taiwan and India are seeking to haggle-down prices by slashing volumes.
Mills in the region have slowed and even suspended production on their machines to cope with weak demand for finished products, stemming from the persistent slump in exports of packaging materials to China.
The downturn has been exacerbated by the sharp depreciation of the Chinese renminbi (RMB) against the US dollar since the end of July. The exchange rate for the RMB versus the US dollar had dropped further to RMB7.31 to $1 on August 17, compared with the recent low of 7.11:1 on July 31, a decline of 2.8%
The currency volatility depressed exports of packaging materials from SEA and Taiwan to China, which are denominated in US dollars.
As a result, customers in SEA and Taiwan have reduced their volumes of OCC imports, and with US OCC pricing being stubbornly high for the past several months, clients have turned to cheaper imports of brown grades from Europe, Japan, Australia and New Zealand.
But the availability of recovered paper (RCP) for exports in the US and Europe has been in decline due to low collection rates there during summer. That has resulted in sellers holding back from giving offers to customers in SEA and Taiwan, while indicating that they would divert volumes away from that region toward India.
But the situation in India is murky. Most Indian buyers making inquiries are traders, who are looking to sell-on RCP stocks to domestic mills, which have low RCP stocks during the current monsoon season but are expected to ramp-up production when the rain stops next month.
An Indian trader indicated that mills in the country were hungry for RCP intake because domestic collection is very low. The problem is that most mills have been taking downtime every month to tackle poor demand and pricing for finished products, resulting from overcapacity in the Indian industry, the trader said.
“[Because they are] uncertain about how strongly packaging demand will pick up in the fourth quarter, mills are sensitive to RCP pricing and resist stocking-up on especially high-priced US brown grades,” he added. “Europe-origin RCP is compared with domestic collection, and end-users consider the former too expensive, and cut tonnages.”
In the end, US DS OCC 12 has gone up this week in SEA, Taiwan and India, with China-based mills and customers in Indonesia and Malaysia paying toward the top end of the range.
Inbound RCP cargoes in Indonesia and Malaysia require pre-shipment inspections to be carried out in the countries of origin, and prices are usually $5-15 per tonne higher than in other SEA countries.
But when demand is so weak across the region, some sellers have been willing to absorb the extra costs for pre-shipment inspections, and the price gap has narrowed, in some cases down to zero for regular buyers.
Prices for the benchmark US OCC 11 have increased $5 per tonne over the past three weeks.
European, Japanese OCC
Buyers’ relentless push for price drops in Japanese OCC with a commitment to get large volumes has been proven to work, with sellers cutting prices for the grade in Taiwan and SEA. Japanese OCC has dropped by $5 per tonne in Taiwan and Vietnam.
The erosion in the Japanese brown grade has led to buyers pushing for price cuts for European OCC, whose sellers were initially aiming for a rise of $5 per tonne for the grade.
Japanese OCC is comparable with European brown grades in terms of fiber strength, but the former has an edge in being cleaner and having a much shorter delivery time than the latter.
The price of European OCC 95/5 remains unchanged from three weeks earlier.
This article was taken from PPI Asia, our newsletter for pulp, paper and packaging market news and prices for Asia. Speak to our team to learn more about our news and market analysis, prices, forecast and more.