Why Global Old Corrugated Cardboard (OCC) Prices Remain So High

Waste paper has become a scarce material in Vietnam, with prices climbing continuously—up about 60% since the start of the year!

Owing to the Vietnamese government's COVID-19 controls and restrictions, the volume of waste corrugated board from factories and households in Vietnam has continued to decline, so Vietnam keeps stepping up waste paper imports. From the start of 2021 to date, the price of waste corrugated board exported from various countries to Vietnam has soared by about 60%.

As a raw material essential for corrugated carton production, waste corrugated board prices have risen by about 20% since April because of the growing shortage of supply of the product. In addition, Vietnam's imports of waste corrugated board from markets around the world are also rising steadily. Among these, Japan's exports to Vietnam grew by about 60%.

Vietnam was once a model country and representative in Asia for successfully responding to COVID-19, but now the country records an average of 10,000 new coronavirus infections per day, and this sustained growth rate has put severe pressure on Vietnam's medical system and infrastructure.

As a result, with the more infectious Delta variant sweeping the region, Ho Chi Minh City and other parts of southern Vietnam imposed stricter lockdown policies. In late August, the Vietnamese government began deploying troops to Ho Chi Minh City and distributing food and other necessities to residents.

As part of the COVID-19 control policies, factories in Ho Chi Minh City and other southern areas have come close to being unable to operate unless workers do not go home and eat and sleep at the factory. Some companies currently have only 30%-50% of their usual staff. Many other factories have stopped production entirely, which has also greatly reduced the total amount of waste corrugated board generated.

Waste corrugated board can also come from households. However, individual recyclers who usually collect waste corrugated board and sell it to waste paper collection stations have been barred from entering areas where the coronavirus is present. Household supply in southern Vietnam is estimated to have fallen by about 80%. "There are no cardboard collectors on the streets anymore," one industry insider said.

At the same time, demand for waste corrugated board across Vietnam remains strong. Although China has banned the import of all types of waste paper on environmental grounds, it has increased its imports of pulp. In recent years many facilities have emerged or been expanded in Vietnam to process waste corrugated board into pulp and export it to China.

The supply of these so-called waste corrugated cartons is now extremely tight, and because of COVID-19 the output of newly produced corrugated cartons in southern Vietnam has also fallen by 30%-40%. The material now sells for about 7,000 Vietnamese dong (31 US cents) per kilogram in the region, up 20% from April, before the current wave of infections.

"Even by paying more, we are working hard to ensure we can provide customers with high-quality corrugated cartons," one trading company said. The company is now sourcing more material from northern Vietnam because the north has not been hit hard by the pandemic. Another option is to import the material. According to Vietnamese government statistics, Vietnam imported 2.91 million tonnes of waste corrugated cartons in 2020, about 13 times more than in 2016, since most of the waste corrugated board that China no longer imports now enters the country.

About half of shipments in recent years have come from Japan or the United States; in 2018 and 2019, waste corrugated board imported from the United States accounted for 30%-40% of total imports. In 2020, each company exported about 790,000 tonnes to Vietnam.

Vietnam's demand is a boon for Japanese exporters affected by China's waste paper import ban. In July, the price of goods shipped from Japan to Vietnam was 27 yen (25 US cents), about 60% higher than at the start of the year. "Export prices to Vietnam tend to be higher than export prices to other countries," one wholesaler said.

Shipments to Vietnam are also draining waste paper inventories across Japan. Waste paper wholesalers in Tokyo now pay 22% more for waste corrugated cartons than in April. But how long this current boom will last remains to be seen. Vietnamese manufacturers' operating rates are at historic lows, while China's containerboard production is also sluggish because of coronavirus-related restrictions and worries about an economic slowdown. "It is not yet clear whether Vietnam's waste paper prices will rise further," one wholesaler said.

European and American waste paper prices keep rising, and containerboard/kraft linerboard prices climb in step

Looking next at the US market, the average domestic price of waste corrugated board in the United States has risen by about 20 US dollars since August, reaching 183 US dollars/tonne overall, a difference of 90 US dollars from last year's average price, which has left many people wondering how long this will last.

As global lockdowns to control COVID-19 stimulated a large increase in online shopping in the first quarter of 2020, demand for corrugated packaging also increased. Although this shift in buying behaviour was largely government-mandated, consumer buying habits have undergone a structural change as consumers become more accustomed to, and even prefer, online shopping. According to the US Bureau of Labor Statistics' producer price index for corrugated box manufacturing, the index measuring corrugated packaging prices rose from 342.1 in the same month of 2020 to 369.4 in May.

Rising corrugated packaging prices may squeeze many companies that rely on packaging to deliver goods to online consumers, especially when demand remains high and subsequent rounds of lockdowns are unfolding globally. From the first quarter of 2015 to the first quarter of 2020, US containerboard capacity grew overall at a slow and steady pace. However, the latest data show that paper manufacturers are raising capacity at an unprecedented rate to meet the surge in demand for corrugated cartons; this base paper will then be processed into corrugated board.

Increased demand for corrugated packaging products has pushed prices to record highs, now exceeding the peak reached in the autumn of 2020. These price increases coincide with record waste paper prices. More and more economies around the world are implementing import regulations that directly affect the industry. China's ban on importing waste corrugated board early this year is a good example.

However, rising raw material prices and increased demand have ultimately driven containerboard prices higher. We can see this from the change in the benchmark grade average price of about 153 US dollars/tonne last month, which rose by about 20 US dollars to an average of about 183 US dollars/tonne. Another source of price pressure comes from transport, which grew by about 15% between the first quarter of 2019 and the fourth quarter of 2020.

In Germany, supply in the kraft linerboard market remains tight, so sellers are considering raising prices from October and have already begun price negotiations for New Year deliveries. Given the tight supply in the kraft linerboard market, price negotiations for the coming year have already begun, and the corrugated board industry and its customers hope to secure reliable supply in early 2022.

In the UK, packaging paper and board market prices continue to rise because of strong demand and already high—and sometimes still rising—waste paper prices. In France, strong demand for packaging paper and board dominated during the August holiday period. Against a backdrop of good demand but limited supply, kraft linerboard manufacturers again raised prices for brown and white kraft linerboard. Manufacturers all hope to make further price increases for September and October deliveries.

Why do OCC prices stay high, and where are they heading?

Looking at the raw materials used to produce containerboard, one can see the impact in particular of rising recycled fiber prices. This is mainly due to the fact that the recovery rate of waste corrugated board fell during the pandemic. Large stores cannot generate waste corrugated board on the scale seen before COVID-19, and collecting it from consumers' homes is more expensive, with the recovered volume of waste paper also completely different.

The global market remains extremely uncertain and fluid, and as countries adapt to new regulations and continue to respond to the evolving pandemic, global waste corrugated board prices are likely to remain high in the short term. However, the growth rate of corrugated packaging will be much slower than in 2020, and waste corrugated board prices are not expected to stay high for very long. Fisher International expects prices to peak before starting to fall in the coming months.

——This article is reprinted from China Packaging Network (pack.cn). Original link: http://news.pack.cn/show-378461.html