New Years Starts Strong for Recovered Office Paper

by Ken McEntee

The year began strong for sorted office paper, as major North American buyers scrambled for tonnage. Buyers for some U.S. mills said they expected to see a flat market in January, but panic buying from mills with low inventories drove prices up more than $10 a ton across the country from December to January.

Along with what traders called a "seller's market" came concerns about declining quality of the paper being delivered to pulp and tissue mills.

Buyers generally said they expected markets to level off after the usual January increase in generation. But some traders, noting the increased capacity coming online during the first half of the year, projected red-hot office paper markets through 2007.

"The price of office paper is going to be at $180 by the end of spring," predicted a supplier in Atlanta.

But buyers, many of whom reported high inventories, say that's wishful thinking.

SOP prices, averaging $135 a ton throughout the U.S. in January, reached the highest point since September 2004.

Regardless of oncoming new demand, most buyers said they were surprised at the strength of the SOP market.

"Panic is the main reason," said a mill buyer in the Southeast. "My inventory is good. Going into January I didn't see any reason to increase prices. Typically during the first 10 days of January collections begin to pickup and there is fiber in the pipeline and we're back to normal. We normally expect the first quarter to be pretty even keel. This time there was a premature price jump."

Buyers for several smaller-sized mills said larger consumers pushed prices up when their inventories fell to uncomfortable levels.

According to a Midwestern buyer, the market will remain strong as long as Georgia Pacific, Cascades and Bay West Paper continue to buy aggressively.

"Some of us planned ahead and some of us didn't," he said. "We tried to hold at last month's prices but when the other guys raise prices we have to compete. We're full, so I don't expect to raise prices again in February. Probably what will happen is we'll hold our prices but reduce our volume next month."

Export is a growing factor in the market for office paper.

For the past year traders have been projecting that China, which dominates the market for OCC and mixed paper, would begin to move stronger and stronger into the market for white grades.

"China is buying more and more office paper and coated book stock because their tissue production is increasing," said a broker in San Francisco.

And, according to a Midwestern trader, after trying to stay away from shredded office paper, Indian mills are moving stronger into that market.

Trends of recent years are not particularly helpful in predicting what the next several months will bring. Last year, according to The Paper Stock Report , January prices for SOP averaged just under $95 a ton and saw little change until they began to surge upward in June. In 2005 January prices were at about $120 a ton while continuing on a slide that saw prices drop from $140 a ton in the summer of 2004, to under $90 a ton by May 2005,

In 2004 prices started the year at just above $100 a ton then shot up close to $125 a ton in February.

While prices go up, one buyer said, quality is going down.

"We can't use shredded office paper because of the contamination and 80 percent of the SOP on the market is shredded," she said. "The quality has gone way down on all grades. Stickies are the biggest problem, but I'm getting colors in my sorted white ledger, groundwood in the SOP, coated book in my SOP. There is just not a lot of sorting going on and they don't have to sort if the Chinese and Indian mills are taking this material as it is. Rejects are up, but at the same time, the market is tight, so we can't reject everything. It has been a real struggle."

A buyer in the southeast U.S. said the strong markets took him by surprise.

"If this going to hold up," he concluded, "It's going to be a long hot summer."

The author is editor and publisher of The Paper Stock Report and Paper Recycling Online. Get more information at www.recycle.cc.