January 2014 market news
A profitable paper industry, what is the reason?
Panda wishes you still a blessed and healthy 2014 and that it will be a good year on all areas of your life.
First of all Panda shares with you that in our “Market Announcement” dated December 2013, lead to a discussion with Veolia about their transfer of payments. It was made aware to Panda by Veolia France that Veolia does not have any financial payment problems and are not at all in suspension of payment. Although Panda only published that this seemed to be the case, Panda adds some information about this subject which is already corrected by Veolia. To prevent any suspicion to the financial health of Veolia like could have been done after Panda stated that Veolia seemed to have serious payment problems. Veolia declares this as false and unfounded.
Panda regrets the harm caused to Veolia if any. Panda thanks Veolia for their efforts to help Panda continue its commitment to act honestly and fairly vis-à-vis our competitors in conducting our business activities. After all Panda is happy to hear Veolia itself about its financial condition.
Turning back to the market we can be brief, we saw that European OCC was shortly in good demand prices moved up for export towards Euro 125-127/mt FAS range. US OCC being stable making the gap between USA and Europe smaller.
Middle and higher grades are rather stable regionally we can see a small price adjustment upwards. More market news to follow in next editions.
To start this year we touch very briefly the underneath process of the paper and board market in particular the containerboard market, which determines long term probability and survival.
A key driver is Industry consolidation, this is an effect of market imbalance creating strategies like mergers and acquisitions leading to more efficient market systems. As the world we live in today is not a closed loop we see that enormous consolidation already took place in Europe last 20 years, the same in the USA where the first 5 producers are having a market share of 74% which leaded to significant improved industry profitability. But how about China? This process still must take place as the paper and board industries growth the last 15 years was more than 200% to around 120 million tons capacity. Yes each year the Chinese government shuts down millions of old capacity (2012-10.57 million tons) however new cleaner capacity brought on line and still coming online is not sufficient to take away all the oversupply pressures in China which are felt in our market of recycled paper in Europe and USA as prices are rather stable and moved in a small gaps the last year(s).
The reason for high profitability to conclude is that the industry is well organized in particular USA and Europe where more or less oligopolistic markets are applicable (70% or more of the market in hand of a small number of market participants) while in China the process is just starting and developing.
The market of secondary fibre is not as organized as the mills and more fragmented leading to less selling and buying power, lower barrier of entry, more rivalry among existing competitors as a result lower profitability.
To offer a counterbalance towards the end producers the market or recovered paper should take action on different fields to cope with the pressure from the mills, but is it able to do so? We hope as in general our market and more important the hard working people deserve a future for generations to come.