Quarterly Report – September/October 2019

The effects of the changing paper landscape have continued to cause disruption and volatility. The sources of this include: the trade war between the USA and China, resulting in the potential for import tariffs of 5%; reduced import quotas in China resulting in reduced buying and depressed prices; and further uncertainty concerning import restrictions in the Far East, in particular in Indonesia.

The result of this has been that the recycled paper world is continuously having to adapt and seek new outlets. It appears that India currently has the highest volume of available capacity for imports and is able to capitalise on the low global demand through offering low prices.

However, history has taught us that out of change, disruption and volatility, there is always opportunity. This is being seen in Europe as mill groups and paper reprocessors are investing in new capacity specifically to target imports from the USA. It is likely these facilities will be located close to ports or docks to further optimise haulage and container unloading. These could be in place as early as 2020.

The additional capacity is anticipated to make Europe a valuable region for the recycled paper market, with the potential to contribute towards the realignment of supply and demand, in particular if China is to eliminate solid waste imports from 2020.

Of course, the extent of the impact this will have on the UK paper market is yet to be determined owing to Brexit uncertainty as to whether there will be: a trade deal agreed by October 31; a further extension to the Brexit deadline; or a no-deal Brexit on October 31.

Tariffs and customs duties have yet to be officially published and, therefore, there is uncertainty as to the price competitiveness of the UK over the USA and other potential sources of supply.

Additionally, the continued push-back on the Brexit date has meant that UK deink mills have resorted to storing material as a contingency for low supply in the event of a no-deal Brexit. This has had the consequence of further depressing prices owing to low buying activity and is expected to continue through October.

The result of the Brexit negotiations remains key to forecasting the future of the UK/European paper market.