In the short term, the market for recyclables has moved modestly lower. This modest reduction in value is a combination of the predictableseasonal variations for the paper grades and what we hope are temporary disruptions in the HDPE market. Let me briefly describe each impact in more detail.
With regards to paper, the seasonal factors impacting pricing are related to the increased supply from the Holidays (supply curve moves to the right) and lower demand for packaging until the harvest season production starts (demand curve moves to the left). In simple terms, the mills are full of raw material and their order backlog is light this time of year.
With HDPE plastic, both product substitution and lower demand are taking the price of recycled pellets lower. For what we hope is just a temporary period there are much larger volumes of OFF Spec pellets available for purchase in the market for plastic resin than normal. The OFF Spec is cleaner and significantly cheaper. This has forced pricing for recycled supply much lower to compete at least for now. Additionally, the demand for recycled HDPE has not seen the normal seasonal buying this time of year due to the especially harsh and long winter in the Midwest and East which has delayed many irrigation and landscaping project start dates.
In the near term just beyond March, we expect the seasonal factors for Spring of lower supply combined with the beginnings of increases in demand to start working in our favor by April. We are hopeful that pricing will stabilize if not improve by next month.
In the long term, we have more reasons than ever to be optimistic. Two new mill announcements were made this month including one capacity addition in our own backyard. Port Townsend Paper located on the Olympic Peninsula, announced investments that will increase their consumption of OCC by around 7500tons per month starting in the 4th quarter of this year.
Additionally, Pratt Industries is scheduled to break ground this month on a new facility in Ohio that will consume about 35,000 tons per month of MIX and OCC beginning in the first half of next year. As these projects come online, demand will shift permanently higher and, ceteris paribus, pricing with it.
In different words, each of the announced projects, as well as several unannounced projects that are already in construction, will shift demand higher. Economists understand that just as demand and pricing for recyclables has dropped with China’s market exit, pricing will improve with the start of each new mill or paper machine. All other things being equal, there is no doubt in our minds that help is on the way!
As always, please know that Pioneer is working harder than ever each day to find both movement and the best pricing available. Additionally, we are committed to providing the best service possible. We appreciate your business.