Three factors seem to be having a significant impact on supply and demand trends for old corrugated containers (OCC) this year. The pandemic certainly has been a factor, helping to spur some containerboard demand. Tied partly to the pandemic is the rise in e-commerce that has occurred this year, changing the composition of the residential recycling stream and spurring new packaging designs. Another factor shaping demand for the grade is the shift in global markets as China backs out of the market for OCC No. 12 in 2021 and other export destinations emerge.
During The Outlook for OCC session at the Paper & Plastics Recycling Conference International, which aired Oct. 21, speakers and panelists touched on these factors, which are affecting the movement and pricing of OCC.
OCC pricing has been on a roller coaster ride in recent years. In 2017, U.S. OCC prices rose significantly following a surge of exports to China. But prices sank to low points in late 2017 as China implemented its National Sword policy and began restricting recovered paper imports.
OCC prices experienced a long slide downward from about $105 per ton in November 2017 to a low point of $25 per ton by the summer of 2019, only to skyrocket at the start of the COVID-19 pandemic in response to short supplies. Paper and board manufacturers around the world were demanding OCC. Almost all other recovered fiber grades also were in demand in April and May.
Debbie Jones, a senior analyst at Deutsche Bank Securities Inc., headquartered in New York City, said containerboard and OCC markets seemed to be in “much better shape” this fall than in the spring.
“After a surge related to consumers stocking up at the start of the pandemic, demand was relatively uncertain. Inventories were quite high, [and] the investment community was quite concerned,” Jones said.
In March, box demand increased 9 percent year over year. However, by April and May, she said, box shipments fell to the low single digits when normalized for shipping days, and inventories were higher than expected in a lean market. Additionally, at the start of the summer, many containerboard producers took downtime for maintenance.
But things bounced back by the end of the summer. “We saw demand trends actually start to improve,” Jones said. “And what we’ve seen in the last few months is box demand is actually up low single digits, which is much better than [what had been predicted] at the beginning of the year.”
She noted that containerboard producers even began to push for price increases in the November buying period.
“Typically, you don’t see [a price] increase in November—it’s usually in the spring or early fall,” Jones said. “What’s happening now is with the uptick in e-commerce in the fourth quarter, it’s a bigger quarter for the industry.”
Jones said she and her team attributed the strengthening containerboard and OCC markets to a shift in e-commerce-related ordering. With many people working from home and shopping online because of the pandemic, box demand is relatively healthy.
It’s also having an impact on residential recycling streams. Shawn Logan, the Columbus, Ohio-based director of commodity sales at Waste Management Recycling, said that with more people working and shopping at home because of the pandemic, Waste Management has seen OCC increasing in single-stream residential recycling programs. “It’s the fastest growing item in the stream, in fact,” he said.
Mathew Prosser, head of strategic development and business transformation – Europe at London-based DS Smith, said the same trend is occurring in Europe, with the pandemic “accelerating the need to shop online.”
He added, “The issue of recovering good quality OCC is going to be more in the domestic arena with municipalities and local authorities. This means [recycling] education will be very important.”
Effects of e-commerce
Material recovery facilities (MRFs) are receiving more OCC as a result of the growth in e-commerce. On the flip side, with the COVID-19 pandemic, commercial generation of OCC has decreased.
“I heard someone recently say that COVID is a paradigm shift without a rulebook to follow. Consumer trends are changing rapidly, and our customers need support to quickly adapt to those changes,” said Kevin Hudson, senior vice president of forest resources and recycle fiber at WestRock Co., Atlanta. “With social distancing efforts and many consumers typically not wanting to be in populated areas, it’s not a surprise COVID-19 has accelerated the trend of consumers moving to online shopping. With the rapid change in consumer behavior, the demand for e-commerce packaging, like corrugated shipping boxes and padded paper envelopes, has really increased.”
“We made a conscious shift to come back into this market, and in some cases, new growth was there; in other cases, we had to develop it ourselves.” – Shawn Logan of Waste Management Recycling regarding domestic OCC markets
Changes in box designs have affected the types and sizes of boxes MRFs and recyclers are receiving. Hudson said WestRock has been “right-sizing” boxes, or designing packages that fit products better, to ensure less waste and more cost-effective shipping.
Hudson said one example of a “right-sized” package is its Colgate toothpaste shipping box, which the company developed with Colgate before the pandemic. The box is sized to fit exactly three tubes of toothpaste, and the boxes also feature Colgate marketing on the outside.
“This is an example where we were able to help our customer reduce their packaging [and] the fiber included in the packaging, which is a sustainability win,” he said. “We were also able to reduce the freight and the repackaging of products in the e-commerce warehouse … . [T]his again reduces cost to our customers. And we’re able to help the customer with brand identification through the printing on the box.”
Speaking about the growth of e-commerce, Hudson said, “Market data would suggest that there’s a 3 to 4 percent increase in online shopping from the initial [COVID-19] outbreak in the United States. It’s logical to think that some portion of this increase in online shopping will remain after COVID, with potential growth over time. Using that assumption, more OCC generation will occur through residential recycling programs compared to the more traditional commercial generation,” he said.
Hudson continued, “With more OCC coming from residential programs, recycling plants will have to process more single-stream commingled materials versus traditional sources of clean OCC.”
With more OCC expected to enter residential recycling streams through e-commerce, Michel Willems, who is the Netherlands-based European business coordinator at Smurfit Kappa Recycling, said boosting quality will be important. He said source-separated or dual-stream programs could help ensure quality.
“For me, it’s not about the quantity collected but the quality of the material collected,” Willems said. “I’d rather have a little bit less material, which can actually be recycled, than have a little bit more, which at the end of the day ends up in incineration. I think folks should be separating at the source; I want to keep my material clean at the source.”
Changing global markets
In recent months, China has made it clear that it plans to stop importing all grades of recovered paper by 2021. Speakers during The Outlook for OCC all seemed to agree this would happen.
“They will not back down from that. I think it’s something that everyone should be prepared for. One thing I saw recently is that China has committed to be carbon neutral by 2060. This is not OCC commitments but probably an even bigger commitment than that, and it tells me that they are very focused on sustainability and improving the environment more so than they were when they started backing away from purchasing OCC from other nations,” Jones said. “So, that’s one thing that gives me confidence that you’re not going to see them back away [from this decision].”
Logan of Waste Management noted that China’s retreat from consuming recovered paper is the “looming situation that’s been on everybody’s minds.”
“You ask, ‘Is it a big deal?’ Yeah, I think it’s a big deal in general,” Logan said, noting that China has become a much smaller export market for Waste Management’s recovered paper in recent years. “Today [China] constitutes the low single digits of what we export.”
He said Waste Management has shifted its OCC tons to other destinations, including countries in Southeast Asia, the Middle East, Europe and South America.
Some Chinese paper companies are investing in recycled pulp mills globally. Willems of Smurfit Kappa Recycling said he’s heard some rumors of this type of capacity coming online in Europe, but whether this happens “will become more concrete in the coming years.” (For more on recycled pulp markets, see “Recycled pulp possibilities,” starting on page S14 of the print edition.)
Logan said Waste Management has grown its domestic outlets for OCC in the last few years by about 25 percent.
“We made a conscious shift to come back into this market, and in some cases, new growth was there; in other cases, we had to develop it ourselves,” he said. “It’s a lot easier to ship across state lines than across the Pacific Ocean.”
That is not to say that the company has completely abandoned export markets. “So, when we look at the export market as a whole, and you look at all the new machines and new demand and folks who left China to [go to] other Southeast Asian countries and even Europe, [that’s] another great bright spot.”
A similar story is playing out in Europe, as well. Prosser said DS Smith Recycling previously exported OCC to China, but that has changed in more recent years. He noted that demand within Europe will increase with China out of the market.
However, he said, China will continue to make boxes in the future and will require either semifinished product, such as containerboard or linerboard, or some form of recycled pulp.
Overall, global demand for OCC is generally increasing, even though China is out of the market. While U.S. mills might not demand the same stringent recovered paper quality as China does, they are demanding higher quality material than China accepted before it instituted National Sword.
Jones of Deutsche Bank said U.S. consumption of OCC has gone up 4 percent year over year. “I don’t think you’re seeing a material uptick in recycled content at existing mills. I think a lot of the uptick you’re seeing is these new recycled mills,” she said.
“What’s interesting about that is that’s probably where you’re going to see a decent amount of new supply that comes online over the next couple of years,” Jones continued. “I would expect that’s going to be a driver of OCC demand in the coming years, along with just the general box demand growth.”