Export prices improve following Chinese New Year

By Ken McEntee
The Paper Stock Report

In the wake of the Chinese Lunar New Year break, U.S. exporters reported generally unexpected mid-February boosts in prices of bulk grades going to that market. Old newspaper (ONP) and mixed paper, they reported, had the largest increases, but old corrugated (OCC) prices also improved. However, traders reported, it was too soon to determine whether the hikes would hold for any length of time, and whether they would have an impact on domestic mill prices.
Various exporters reported that ONP prices delivered to China jumped by $7 to $15 during the week of February 22, relative to the beginning of the month, with some sellers asking for even more. Mixed paper prices delivered to China, traders confirmed, were about around $6 to $8 per ton higher, with one broker reporting offers for an additional $8 above that. OCC delivered prices to China jumped by $5 to $7 per ton, with offers reportedly extending as much as $5 per ton higher.
Before Chinese New Year, typical OCC prices from the U.S. West Coast delivered to China’s main ports reportedly topped out at around US$163-166 per ton. By mid-February, prices were discussed between $169 and $175 per ton. Mixed paper in mid-February was being offered to mills at US$120 delivered to China – up from around $105, while ONP was being offered at $132 – up from as low as $115.
Some traders said they were mildly surprised by the post-New Year increases, noting that some Chinese mill buyers let inventories slip during January. Others, however, said the increased bewildered them.
“I’m happy that the prices are up. We need better prices to support the MRFs, but I don’t understand what could have happened during the first two weeks of February,” said an exporter in the Pacific Northwest. “Why are they deciding they need to pay more money for paper? There is hardly a domestic market for news and mixed, and the Chinese buyers could have had all they wanted without raising prices. It all seems to have been driven by the Chinese mills’ buying agents – America Chung Nam and Ralison International - who are here in the states.”
According to an exporter in California, “The big newsprint mill in China really flaked out and didn’t want to buy anything earlier, and now they’re running low on inventory. Production there has been unstable, so demand for fiber has been streaky. If mills were more consistent in their buying, nobody would have to get into a panic.”
Some traders expressed optimism that OCC prices will begin to trickle upward throughout 2016. In February, however, North American mill inventories were reportedly full during a seasonally slow production period and mills were far from desperate for additional loads.
The consensus among U.S. traders is that it’s too soon to tell whether the price increases are a temporary adjustment, or whether they will hold for a month or two. They also are waiting to see how domestic prices might be impacted in the weeks to come. Generally, most traders said they anticipated only nominal reverberations on domestic ONP and mixed paper prices because those grades have become primarily export commodities. In particular, almost 75% of all ONP generated in the U.S. last year was exported.
"Domestic consumers will have to bring their prices up, but that's a small portion of the news market," said a broker in the Southeast. "These prices basically just bring the market up to where it was a few months ago."
According to a West Coast broker, “Mills in China are still struggling financially. But prices had been dropping for the last six or seven months slowly. Now it may have hit the bottom and may slowly climb up. I think orders now in the market justify better prices for at least two months. We have orders, other people have orders and we’re all trying to outbid each other right now trying to get the tons.”
Some traders expressed optimism that OCC prices may begin to trickle upward throughout 2016. In February, however, North American mill inventories were reportedly full during a seasonally slow production period and mills were far from desperate for additional loads.
“I think we might see the North American mills coming up to meet the export OCC price, but I don’t think the domestic market is even much of a factor any more for news and mixed paper, especially here on the West Coast,” one broker said.
According to another broker, “Domestic mills in the south are really full, but not so full that we are finding people willing to sell us OCC to export at a price less than the domestic price. So they are still taking loads. For this time of year, though, there is a good supply of OCC being generated. Maybe that is a good statement for our economy.”
OCC, said another broker, “is starting to show a little bit of strength export wise. A lot of people say it won’t continue, but they always say that. They just don’t want it to continue.”
Domestically, traders reported, office paper may be the strongest grade of the first two months of the year.
“Office paper is getting strong on the export market and it’s carrying over to the domestic mills as well,” one broker reported. “China is showing more interest, Mexico wants more and the U.S. and Canadian mills are pulling from a larger supply radius than usual. Meanwhile this is a slim generation period. In my opinion, office paper has been artificially lower than its true fiber value for quite a while, so it’s good that is starting to show some strength.”