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Vecht 125 - 2911 ER - Nieuwerkerk aan den IJssel - The Netherlands 


April Market News

 

OCC rollercoaster do we have fun?

China did not came back instead reduced their prices further, analysing their current economic situation it is no big surprise. The Chinese economic indicators weakened in March more than the general expectation. The banks in China dropped their loans with 50%. The HSBC China Composite PMI index covering both manufacturing and services, contracted at 49.3 points, the sharpest fall since November 2011. GDP growth is still expected at 7.5% in 2014. Whether the government will put stimulus in place is still a question mark as the top priority in China is stabilizing economic growth reducing the economy’s dependence on export and enhancing the role of consumption. The result of it was felt sharply in the Chinese paper and board industry were prices dropped further due to overcapacity and imbalance of supply- demand situation. OCC prices dropped with around RMB 60 per ton in March hindering moving up the recycled containerboard levels.

In Europe the economy is picking up however from a very low and fragile basis. The ECB revised the GDP forecast for this year upwards to 1.2%. Interest rates were kept unchanged with the risk of deflation threat as prices are continuing to fall. OCC prices for export dropped with around
15 per mt, below the 100/mt delivered to the port. Reason for the drop; increased sea freights (between $150-300), no space (only as from May) with another potential sea freight increase for May, weak global demand for OCC, resulting in non-competitive prices against the domestic market. Local mills still have good demand announced a drop of €10 in some regions lower not more than €5 per ton. The result is that the gap of 10-15 (depending on the region) stays alive between domestic and export prices. Mix paper is not certain due to good demand for De-inking. Middle and higher are rather stable.

The coming years the cycles of export from Europe will change to new norms. Although the collection the coming years in Europe will increase to 63 million tons, local consumption is expected to increase to 59 million tons. The surplus will be around 4 million tons with export mainly from the UK. Export from the European continent to the Far East is forecasted to become minimal. Export will mainly take place within Europe and to the Eastern part of Europe.

The USA, the largest economy in the world continues to grow further where the Fed reduced further the bond purchases. The unemployment rate has fallen to 6.7% close to the Fed’s target of 6.5% to trigger an interest rate hike. However the Fed decided to tie the interest rate rise to various indicators and not just the well-known employment rate, postponing the interest rate hike. Many economic indicators in March are promising creating positive business atmosphere, house market recovery and overall capital spending. With the winter in the USA being over the lack of trucks and railcars are leading to order backlogs.

In the USA the OCC prices dropped by
$10-15 over the whole country after the March increase of $15-25. The local US market is simply flooded with OCC, the tons normally going to the export is piling up and the domestic mills are full. The domestic OCC pricing of the local mills is like a rollercoaster. In the first week of April export OCC prices dropped with $24-25 from the West Coast, the same from East Coast.

After a period of consolidation in the North American containerboard market with significant improved profitability the last years, new projects are boosting the capacity to almost 41 million tons by 2015. The family owned company Saica one of the largest European containerboard producers (number 3), has interest to enter the US market but is still looking for the right strategic partner.
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