Quarterly Report – April/May 2019

The beginning of 2019 has been complicated. Almost two years after the Chinese government’s first import control decisions were made, the market is still facing some uncertainties and difficulties.

2018 was a year of contrasts with many ups and downs. The progressive withdrawal by Chinese buyers towards the end of the year made for stressful conditions in Europe despite a growing market supported by healthy demand for packaging, and everybody was wondering what China’s import quotas would be for 2019. The Chinese government has announced year-on-year reductions ahead of reaching zero in 2020, but will this really be the case? What will China’s paper makers do in the future? They may develop domestic sorting of rubbish, launch papermaking machines in Asia and make recycled pulp somewhere else in the world. When this new model emerges, the market should make a fresh start.

Early developments in 2019 have confirmed our worries. There are not enough import quotas despite Chinese paper mills’ needs, and buyers have been using them mostly for the supplementary US market. The situation in North America is more serious than in Europe; owing to a lack of outlets, several municipalities have stopped sorting waste and have been sending it directly to landfill sites or for incineration. The consequences have been numerous in Europe too: cardboard stocks have increased at the paper mills and the recycled paper market has been declining for two months.

Given that finished product prices have been falling for six months, our customers will not hesitate to lower recovered paper prices in line with the existing situation. 2018 is indeed at an end. Demand is good in South East Asia and Turkey but is not properly in balance with supply. Prices have been falling and remain under pressure; the Americans have so much material that they are driving down prices to obtain purchase orders.

The middle grades market is also under pressure. Arjo’s troubles in France have had consequences for the market and some grades are difficult to sell. The takeover of Greenfield by German group WEPA is good news while Le Bourray, which has been partially taken back, will probably no longer consume recycled paper.

Stocks of the deinking grades are high, especially in Germany. Usually, demand and prices start to rise in the spring - but not this year. Prices have fallen slightly and paper makers are being overwhelmed by tonnage from the UK and Italy that would have been destined previously for China. It is to be hoped that the holidays in May will ease the situation; indeed, it will be interesting to observe what happens between now and June.

The high grades market is also trending downwards after having peaked in 2018. In the face of strong demand and rising pulp values, substitutes prices had risen sharply. There is now less pressure on these markets and prices are adjusting. Nevertheless, collected volumes fall year after year and there is no stock in the market.

Without a return to full Chinese demand and since not all of the new machines around the world have started up yet, we may face volatile market conditions. But a new cycle will chase the current one, carrying the market towards better days.

Jean-Luc Petithuguenin - Jean-Luc Petithuguenin (France)

Jean-Luc Petithuguenin

Paprec (FRA)

Quarterly Report – April/May 2019