China’s tariffs, CCIC, buying slowdown affects US markets; OCC for US mills holds across the country
China continues to shake up recovered paper markets in the USA in several ways as it has slowed its buying of secondary fiber, leaving more material in the USA. Ample supply of old corrugated containers (OCC) remained in the USA as China’s demand has weakened, industry contacts told PPI Pulp & Paper Week this week.
In addition, contacts reported difficulty moving material overseas related to continual slowdowns from China’s CCIC (China Certification and Inspection Group) and its recent 25% tariff on recovered paper imports. US recovered paper pricing mostly stabilized from the month prior as a result.
One source said he previously sold double-sorted OCC at $300/tonne CFR delivered to main ports in China before the tariff, and that level has since dropped to $260 CFR on Sept. 6 because of the 25% tariff. The tariff went into effect on Aug. 23.
“Export to the China market has been very slow and stable since the 25% tariff implemented officially at the end of August,” said one contact. “Neither the CCIC policy nor the additional tariff is helping the export market.”
Sources have said the tariff is being split either between the supplier and the mill or three ways between the supplier, the mill, and the broker. For one source who went long on orders, he said his company was protected from the duty and prices adjusted.
The duty certainly has affected pricing. A contact noted that while he hasn’t seen the full 25% tariff in effect, prices have dropped $5 or $10 per ton in some cases. The contact said his company has struggled to put material on the water as “it cost time and money.”
“If we had 10 rules to abide by, we’d do it; but, the problem is, it changes every day,” the contact said.
Banking on China no longer practical. One contact in the Southwest told of a supplier in California that had a five-container minimum for booking, and after 25 bookings, the source said that “when the tariff was announced, it was canceled.”
“People react a little too severely. People should be figuring out what they should be doing long-term,” the contact said.
To avoid the “roller-coaster speculation of export,” one source is interested in finding domestic partners for OCC.
China imported just under 346,000 metric tons of OCC in July, 15% less than the 404,000 metric tons it has purchased on average from the USA each month this year, according to recently-released US trade statistics.
Despite China’s curbing of recovered paper purchases recently, one source pointed to a potential comeback in buying due to a typhoon strike in Japan. Typhoon Jebi hit Japan Sept. 4 in Osaka, Japan’s third largest city with 2.6 million people. A contact claimed this catastrophe could shut down recycling for up to 10 days, resulting in little to no recovered fiber from that area for local mills or China. The contact said he expected this to pinch China’s source of material, pivoting China to try to buy more material from the USA.
In China, one source noted the effects the Chinese government’s decisions are having on its own market, saying, “As we approach 2020, a complete ban of waste paper imports in one-and-a-half years is a very real concern for all Chinese paper mills. Mills are experimenting with recycled pulp, buying paper mills outside of China, and building mills outside of China.”
Mixed paper. Export pricing increased for mixed paper by $10/ton FAS out of New York/New Jersey ports and Chicago’s container yard, and $5/ton from Long Beach and Oakland ports in California as sources said they found alternative markets for this grade in South Korea, Thailand, India, Indonesia, Vietnam, and Taiwan. US sources said they have limited the amount of mixed paper they are generating, or are planning to head in that direction. Others have been landfilling the mixed grade.
“There’s no light at the end of the tunnel for mixed paper,” said one contact.
Another source said, “When China made big moves, people said, ‘Wow, the new reality is that we have infrastructure that makes more mixed paper than we have use for.'”
Pushed by export, mixed paper pricing increased in the US by $5/ton on the West Coast. On a year-by-year average, domestic US mill mixed paper pricing on a national average basis is down 95% from September 2017, to a $3 average as of Sept. 6, according to PPI Pulp & Paper Week‘s latest pricing survey.
In the Midwest and Southeast, groundwood and high grades saw increases ranging $5-10/ton. Sources said white grades are doing well, demand-wise, with sorted office paper (SOP) catching a $50 premium in the Midwest in some cases. With premiums having crept up over the last few months, one source said, “I have been doing this my whole life and I’ve never seen premiums up this much.”
White blank news, which increased by $10/ton and $15/ton across the board, has several options for buyers, a contact said.
Pulp substitutes remained flat. There still is limited supply of white ledger and pulp subs, said a source, which has caused some continued higher pricing for sorted white ledger (SWL).
For hard white envelope cuttings (HWEC), one source said the flat pricing is reflecting the peaking of bleached pulp pricing. Even so, there remain pricing increases for market pulp, even following at least a $40/tonne bleached softwood kraft decline in the last month in China.
“Though pricing for pulp has been increasing, mills have been reluctant to increase their pulp sub pricing,” said one contact.
Contacts in the Southeast region reported high demand for recovered paper, with one source saying, “We’re seeing quite a bit of action, movement, and strong demand, which hasn’t affected the Northeast.” He added that the Northeast has a backlog of inventories.
Another source told of weather-related quality concerns in Florida with the summer rain and heat.
“We want quality and if we can’t get quality, I can’t buy it. Even if I can get it at $0, I still need quality,” the source said, referring to mixed paper.
OCC. Although domestic pricing for OCC remained flat, sources reported good demand for this grade, with China “aggressive” for OCC No. 12, one contact said.
Compared with September 2017, the national pricing average for OCC at domestic mills in September 2018 is down 54%, from an average of $151/ton to $69/ton. The noticeable differences lie in where OCC is sold, with some prices in California, the Midwest, and the Northeast $20-30/ton less than in the Southeast and Southwest, where levels topped at $90-95/ton at the FOB seller’s dock, according to P&PW‘s survey. The bulk grade sold for a range of $35-40/ton out of the Pacific Northwest; $60-65/ton out of the Midwest; $65-75 in the San Francisco and Los Angeles; $65-70/ton out of New York metro and Buffalo/Toronto; $70-75/ton out of New England; $85-90/ton out of the Southeast; and $90-95/ton out of the Southwest.
Contacts reported that Southeast mills purchased OCC tons from the Midwest region. Will mills continue to go out of their regions to buy more tonnage, contacts questioned.
One source reported tightness for OCC in the Southwest. Generation is down and mills are running strong, contacts said. Contacts cited several mills with higher premiums than the market norm, but they were few and did not affect the majority in any region.
“We had no problem getting the volume we needed,” said one contact.
Added another, “There’s a lot of corrugated.”
Contacts claimed that International Paper’s Maysville, KY, containerboard mill restarted Sept. 4 or 5, which will affect OCC demand. The mill had been down for an extended shut for a project that is expected to increase the mill’s demand for OCC.
Another factor affecting OCC relates to grocery store contracts switching hands. Contacts claimed America Chung Nam (ACN) recently won the Walmart three-year contract on both coasts with Kroger’s contract in the Southwest up for bids Oct. 1. ACN is the largest US exporter of recovered paper and an affiliate of China-based Nine Dragons, Asia’s largest paper and board company.
One source questioned the truth of China’s 2020 recovered paper ban when companies like ACN are winning corrugated contracts in the USA.
Despite the Labor Day weekend in the USA, sources said domestic mills, which typically pull strong prior to the longer weekend, took in less material.
CCIC slowdown continues. Sources reported additional costs and slowdowns related to CCIC inspections. One contact reported needing “super clean material” and 1,000 tons of inventory before CCIC inspectors will review loads. Contacts have complained about CCIC’s “very slow process as there are limited licenses being offered by China to suppliers.” There was reportedly a release of more import licenses this week and one contact expected another release soon.
“Clearing customs is the priority right now,” said one exporter. “Ports need to be able to handle things well; they can’t clear containers out.”
With volumes into China dropping, one contact reported hearing that CCIC might cut back on the number of inspectors it uses.
“CCIC continues to be a problem,” said the source.
Although inspections are costing more with CCIC involved, an exporter said he is getting better pricing overall as a result and said, “I guess I can’t complain.” Another source said his company is working “relatively well” with the inspectors, saying that for two large buyers, dates and times have been set for inspectors to arrive. This has allowed his company to ship 10 to 15 containers “easily enough since the inspectors are flexible in their starting times.” Others said CCIC lead times vary from supplier to supplier and region by region. Pacific Northwest suppliers, said a source, need to coordinate further in advance, resulting in inventory buildup. “Nonetheless, our plants in the Seattle area are doing pretty well with movement. Can’t say for others,” said a contact.