The export market is like the weather. Everybody talks about it, but how much control do we have over it and how important is it really?
Currently, exports account for approximately 18 percent of all recovered paper sales in the United States. While some consider that a small percentage of the marketplace, movements in supply and demand of less than 1 percent can cause market price shifts of $20 per ton to $30 per ton.
Frequently, there is too much emphasis on the impact of export activity on the total recovered paper market. However, through the years, I've come to believe that exporting is the market's leading edge.
“Asian countries can buy paper from the United States or Europe, which creates a more volatile market for the United States.”
The United States primarily exports recovered paper to Canada, Mexico, Korea, China and Taiwan. For statistical purposes, Canada and Mexico are included in exports. But because both are North American countries and don't receive significant recovered paper supply from anywhere except the United States, they differ from Asian countries. The next five largest countries that import recovered paper from the United States all are in Asia.
The need for recovered paper in Asia and Pacific Rim region comes primarily from their lack of forests. However, Asian countries can buy paper from the United States or Europe, which creates a more volatile market for the United States.
The United States is the world's largest exporter of recovered paper, but Europe, especially Germany and Scandinavia, export significant amounts of recovered paper.
Knowledgeable market players know that savvy Asian buyers play off the marketplace dynamics in Europe and the United States. With transportation of the commodity taking as long as a month, a buying strategy can take into account the inventory that currently is shipped but has not yet arrived (“on the water”), thereby providing a hedging mechanism.
This past summer, the falloff in recovered paper prices, particularly for old corrugated containers (OCC), was strongly influenced by the export market. The United States containerboard mills, which are the largest OCC users, had significant amounts of downtime because of finished product market conditions. This created the atmosphere for a price correction.
Nevertheless, many experts feel that the poor operation of Nine Dragons, a large Chinese recycled linerboard mill, played a major role in the OCC market correction.
With both North American and European recovered paper use rising steadily, and with local collections increasing in Asian companies, the United States expects exports as a percentage of the total market to be flat. However, total tonnage is expected to continue to increase.
Asia's growing population and increasing standard of living are driving growth in the continent's pulp and paper industry. Thus, the Asia and Pacific Rim regions will continue to be fiber short and will need to continue to import recovered paper from the United States.
Paper Trail author, Bill Moore, welcomes questions and comments from readers. Contact the author via e-mail at: [email protected]
The columnist is president of Atlanta-based Moore & Associates, a paper recycling consulting firm, serving suppliers and users of recycled paper.