Quarterly Report – April/May 2019

In the export market, April saw the Chinese government release a larger-than-expected number of import licences to its mills. However, there were minimal additions to these initial licences, causing mills to take extended downtime throughout the Chinese New Year holiday. As a result, the market was unable to import significant volumes of material.

There was a knock-on oversupply in the US paper market and, to alleviate stock levels, material has been redirected to South East Asia, forcing these markets to become further oversaturated and fragile. Consequently, authorities in South East Asian markets have continued to tighten regulatory restrictions in order to reduce environmental breaches and severe port congestion, with some following in the footsteps of China and selectively introducing a 0.5% contamination limit.

Looking ahead, the industry believes 2019 will bring a 40% year-on-year reduction in import licences issued in China. It is unclear how the country will meet its future containerboard production demand, with additional types of solid waste expected to be transferred to the catalogue of those banned from importation, moving China closer to its goal of zero imports of solid waste by the end of 2020. It is currently uncertain whether any forms of recovered paper will be included among allowable imports in the future.

In the UK and wider European market, the start of 2019 saw decreased demand from mills owing to the issues posed by the export market. Volumes that could be imported into China were limited while Brexit created uncertainty, thus increasing supply of material available in the UK. Mills increased their purchases of material from the UK following the Christmas period in order to build stocks in preparation for the initial Brexit deadline of March 29. Moreover, the USA has moved significant volumes into Europe.

Middle grades are currently strong into the UK, with Multi and White Heavy Letter actively being sourced. However, selling middle grades to Continental Europe continues to be challenging as mills are fully stocked with US material.

Furthermore, the UK industry is going through a period of adapting to the new CCIC quality control scheme. It is unknown whether UK producers will opt into this scheme.

While the UK recovered paper industry continues to deal with change, there is a reduced possibility of a no-deal Brexit, with expected 0% tariffs for the UK recovered paper exported into Continental Europe. This will reduce market pressure and settle the industry.