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Export Regulations Recovered Office Paper Markets Strong During Third Quarter

By Ken McEntee
U.S. exports of deinking grade scrap paper, including Sorted Office Paper (SOP) and Sorted White Ledger (SWL) were strong through July, topping comparable 2015 exports by 30 percent, according to the U.S. Department of Commerce.

The improvement in export demand offset low domestic usage, but recovered paper traders in September said a strong tissue business was bringing up demand and prices.

“I can’t believe how many mills are out there looking for office paper,” said a broker in Chicago. “Tissue mills are running strong and they are paying premiums for paper from the Midwest, Southeast and Southwest and it doesn’t show any signs of stopping.”

Traders said demand from Mexican mills had also improved over the summer, helping to boost prices.

A September survey of mill buyers and suppliers showed a U.S. national average SOP mill price of $173.75 per ton (FOB, seller’s dock), the highest September average since 2011 when the average was $262.50 per ton. That year, the average price tumbled $120 down to $140 per ton by the end of the year.

The September 2016 price was up about $12 per ton compared to the same time last year, and was up about $30 per ton compared to the beginning of the year.

Over the past five years, SOP trended slightly downward during the fourth quarter, with the slide of 2011 being the exception. Most traders said they anticipate prices to remain strong through October and possibly into November.

“Generation from document destruction services should be stable, and I expect mill demand from India and China to remain strong,” according to another Midwest broker. “I think there is a lot more demand than generation in the market right now.”

Through July, exports accounted for about 20 percent of U.S. deinking grade sales, up from about 16 percent last year. Mexico, the largest export market for deinking grades, started the year slowly, taking in about 16,000 short tons during the first two months, according to Commerce data. However, Mexican mills imported more than 100,000 tons between May through July.

With the SOP supply falling short toward the end of the summer, domestic and overseas mills were taking in more Sorted White (SWL) and Manifold White Ledger (MWL), pushing prices up for that grade, dealers said.

“Three months ago we had white ledger coming out of our ears,” said the broker in Chicago. “It’s hot now because of the shortage of office waste. Coated Book Stock (CBS) also is being pulled up by the office waste demand. Some mills, however, prefer not to use Coated Book because they don’t want the clay in their system.”

Still, the price of CBS generally is aligned closely with SOP.

On the export market, deinking grade prices haven’t seen the heavy ramp up seen in the U.S. market from January to July – at least not according to Commerce trade data. According to Commerce Department averages, the average FAS price for all deinking grades in July was $213 per ton, compared to $210 in January.

Ocean shipping rates remained extremely low, which finally led to the demise of a major container line. South Korea’s Hanjin Shipping Co. filed for bankruptcy in September, creating havoc at ports around the world as vessels, reportedly holding $14 billion worth of cargo, were denied entry or unable to load.

Recovered paper exporters, however, reported few problems beyond some minor inconveniences.

An exporter in the Southeastern U.S. said he had some outbound containers backed up at the port of Wilmington, N.C. when a Hanjin vessel was shut out of the port.

Wilmington, an exporter in Florida, said, presented a unique situation.

“At a port like Savannah, where Wal-Mart and Kmart have big warehouses, all the ship lines are going in, so it isn’t a major disruption when Hanjin isn’t there,” he said. “At Wilmington, Hanjin was the only line going through there, so it was a problem.”

On the West Coast, an exporter who ships out of Long Beach said he had some Cosco containers on Hanjin vessels that were anchored outside the port.

“We haven’t been using Hanjin lately, but all of the lines are sharing vessels now, so all of the major carriers are affiliated with Hanjin in one way or another,” he said. “I had a lot of Cosco containers on the Hanjin ships, but I wasn’t very worried about it. We had to pay to get our empties off and for the transportation in and out of the port, but we didn’t have any demurrage charges.”

According to another Southern California exporter, “We haven’t had any Hanjin-related shipping problems yet, but it’s too early to tell if there might be later on. Secondary affects are hard to predict with any accuracy.”

Generally, though, the people who were doing the worrying were retailers who were concerned about getting merchandise to their shelves in time for early holiday shopping.

Overall, said Niels Erich, spokesman for the westbound segment of the Transpacific Stabilization Agreement (TSA), the overall impact of the Hanjin bankruptcy on recovered paper exporters “should be minor.”

“Hanjin has not been a major player in the wastepaper market, fluctuating within a 3 to 5 percent market share for the commodity,” Erich said. “We've heard relatively little discussion about stranded westbound cargo, and nothing specific about wastepaper. Given the overall slowing factory demand for wastepaper used in export packaging, I doubt the volumes stuck in transit are very significant.”

Erich said TSA’s 15 member lines are looking to implement a two stage general rate increase (GRI) to take effect on October 1 and November 1.

“For October 1, most lines are looking at around $300 per FEU (Forty-foot Equivalent Unit) across the board, with some fine tuning by commodity,” Erich said. “In the case of wastepaper, however, I'd imagine lines will be looking for the full GRI or close to it, as rates have been so low recently that some lines have considered exiting the segment to focus on repositioning empty equipment.”

He said the November 1 GRI is set at $100 per FEU.

“It should be noted, by the way, that lines first notified the trade of these scheduled increases in early August, pre-dating any of the Hanjin news,” Erich said.

Recovered paper exporters are generally sympathetic to the container lines’ financial issues.

“They are bleeding,” said an exporter in the Northwest U.S. “If they can’t get reasonable rates there are going to be more bankruptcies.”

However, few, if any, exporters expect the full rate increases to stick.

“They never do,” said the Southern California exporter. “They are one of the few industries that can sit down and talk every month and set prices, but even so, it doesn’t mean anything when they make rate announcements. They sit down at a table and everybody agrees, and before they even reach the elevator they are undercutting each other. This time around I think rates will go up, but not as much as they want. They see what happened to Hanjin and they don’t want it to happen to them.”

Over the past 15 years, he said, he has paid as much as $700 to move a container from Long Beach to China, and around $1,200 to ship from New York to China. That rate, he said, is now around $200.

The author is editor and publisher of The Paper Stock Report (www.recycle.cc), which tracks the North American market for recovered paper.

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