Hannah Zhao, Economist, Pulp and Recovered Paper
July 16, 2012
The world recovered paper market has been going through a very turbulent time period since the Great Recession in 2009. For instance, domestic prices of OCC in the US market went through four up and down cycles between January 2010 and June 2012. Although most of these price cycles had very sharp ups and downs, prices never went below the floor of $130/tonne, which was registered in August 2008 when the market was about to collapse. The European market was even more turbulent during the same time period, especially when compared to its pre-recession performance.
The higher price floor over the past 30 months can be attributed not only to rising costs, including collecting, processing and transportation, but also to the tighter demand/supply balance worldwide. On one hand, the aggressive capacity expansion of recycled based paper and board, particularly containerboard and newsprint in Asia, has continued to push recovered paper demand up. On the other hand, the sharp decline in graphic paper consumption in the developed world and the already very high recovery rates have put limits on the potential growth of recovered paper supply in the developed regions. Although Asia and other developing regions have tried to improve their domestic recovered paper collection, their currently very poor recycling systems mean very limited growth in recovered paper supply from these regions, at least in the short and medium term. All of these factors have created a generally tight demand/supply balance, which has pushed the recovered paper price floor higher than the prerecession levels.
The sharp ups and downs in the North American and European markets, however, can be partly explained by their increasing exposure to the global recovered paper market, which has been led by Asian, particularly Chinese, recovered paper buyers. US net exports of recovered paper rose from 8 million tonnes to more than 20 million tonnes over the past two decades, and the share of its net exports in its total recovered paper collection also climbed from about 20% to more than 40% over the same period. Compared to the United States, Western Europe is much smaller in terms of recovered paper exports, but it experienced a similar path. Western Europe turned from a net importer of recovered paper to a net exporter in the middle of the 1990s and its net exports have grown strongly since, reaching a peak of nearly 10 million tonnes in 2010. Meanwhile, the share of net exports in its total recovered paper recovery escalated from 0% to more than 15% during the same time period. Most of the recovered paper net exports from these two markets go to Asia, which has been and will continue to be hungry for recovered fiber.
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Hannah Zhao, Economist, Recovered Paper, is the coauthor of RISI's new study: Outlook for Global Recovered Paper Markets, as well as the World Recovered Paper Monitor and the World Pulp & Recovered Paper 5-Year and 15-Year Forecasts. She works out of RISI's Charlottesville, VA, office and can be reached at Tel: +1.434.978.2927-14 or Email: email@example.com.