Containerboard - Market Situation for Recovered Paper

Date - 7/11/2009

The availability of OCC (Old Corrugated Carton) for containerboard producers remained tight. Prices of OCC from various destinations (US,Europe & Japan) remained at high although it was lower than the peak last year.

The main reason for low availability was mainly attributed to low consumer spending in high purchasing power countries like Japan, US and Europe. As a result, lesser used boxes were generated over the last 3 quarters in 2009.

Most paper millers foresee that prices of recovered paper will continued to escalate further based on the following reasons

a. New Containerboard mills

In view of massive expansion of containerboard mills with the Asian region dominately by China, the demand for recovered paper will raise even further. These new mills had high capacity ranging from a quarter to half a million tons per annum.
As such, demand for OCC will continue to increase.

b. High price of USKP (unbleached softwood kraft pulp)

The continuous surge in USKP price also force containerboard mills to revert more to recovered paper as the prices between OCC and USKP had grown wider. Unless the prices of USKP soften, otherwise the paper millers will continue to substitute some of the USKP portion to OCC. Thus, demand for OCC will continue to surge.

With winter season around the corner, prices of USKP will continue to remain high as trees harvesting will be affected especially in Russia and Northern America.

c. Lagging effect

Despite some sign of improvement in demand for containerboard in 3Q2009, the recovery of OCC will lagged behind as the lead time from usage to collection will lagged behind by 1-3 months depending on the efficiency of the collection system.

Caution

Nevertheless, the sustainability of current OCC prices will very much dependant on the demand for Containerboard. As we know, demand for containerboard had weakened over the last 2 weeks (end Oct to early Nov) thus if demand continue to fall, paper millers will go for curtailment. As a result, demand for OCC weaken thus price of OCC will dropped again to its original level.