The market for recyclables in April has continued the trend established in March of lower paper prices and higher pricing for many plastics and metals. Because paper represents about 75% of the comingled yield, the overall value of ResMix has declined again in April.
The decline in paper pricing is simply a function of supply and demand. China is essentially not buying paper from comingled MRF suppliers. Their purchases have been limited to post-industrial paper from printers and converters and OCC direct from retailers like Walmart. These papers are very clean because they are not post-consumer. Pioneer does not expect this pattern to change anytime soon, if at all. China is a dead soldier to us now.
With China out of the picture for purchase of post-consumer material there is an abundance of supply for the remaining mails willing to purchase our paper. These mills understand the current situation and are continuing to push the price down for what they buy. Sadly for all of us, this is likely to continue until new paper machine conversions and new mills create enough demand to move pricing upward.
In my letter of last month, I mentioned that as difficult as the movement and pricing environment for recyclables is currently, Pioneer remains optimistic that the pricing and movement of recyclables will return to something more “normal” in the medium term. Why are we so optimistic for the future when the present pricing enviroment is so bad?
First and foremost, because the sale and movement of recyclable materials occurs in a free global market. This means that all economic decision makers in this market are free to make whatever choices they deem in their best interests. And making decisions they are. Examples include:
- MRF’s choosing to sell paper to new markets in India, Vietnam, Indonesia and elsewhere.
- Paper mills choosing to convert paper machines from communication papers to linerboard & medium. (There are seven announced machine conversions in North America currently)
- Chinese mill buyers choosing to purchase post-industrial OCC. (store bales)(ACN is now importing Walmart bales to China)
- Domestic buyers shifting some demand to MRF’s as they lose store bale OCC to Chinese buyers.
- Chinese box plants choosing to purchase and import finished paper rolls from any willing seller anywhere in the world. (roll brokers have never been busier)
- Entrepreneurs in Southeast Asia who have noticed the increase in demand for finished rolls, beginning to study the construction of new paper mills close to China for easy shipment to their box plants. (rumors at this point)
My point is that free markets are not static. Anything but. Markets are constantly reacting and adjusting to the very latest information about current, and expected future demand and supply.
Capital moves quickly in our global economy. Decision makers will respond quickly whenever they sense a significant profit opportunity. (The spread between Linerboard sales value and OCC purchase price has never been larger in real terms)
In just 2 to 3 years (it takes some time to construct a new mill, machine conversions can occur much faster) the market will have created significant new demand for the recycled paper MRF’s produce. All of these decisions and actions will be taken without a central authority directing or dictating the outcomes.
Secondly, and just as importantly, because the current global economic environment is so robust. As I have mentioned before, all of the major world economies are growing simultaneously for the first time in over a decade. Production of manufactured goods is expanding globally and strongly. All of those goods need packaging for shipment and sale to consumers.
This overall world demand will not and cannot be ignored. The overall world demand is creating a backdrop of opportunity for existing players in the packaging industry to make money. That’s “blood in the water” for business decision makers. Recycling will be the beneficiary of this over the next 18 to 36 months. What a wonderful free market system we have!
As always, Pioneer is working hard to find the very best pricing the market has to offer and to operate in a reliable and efficient manner. We appreciate your business.