As suggested previously, this has been the year of roller-coaster ups and downs, with COVID-19 helping to fuel market volatility. It has been a very rich and challenging 2020 to date - and the year is not over yet!
By the end of June, we were finally back to normal collection rates for the lower grades and for deinking material. But with paper mills facing low demand for their products, their demand did not match a supply made up of production and stocks, resulting in a decrease in prices during July. Asian demand was quite high over the summer months, especially with China booking its final shipments for 2020 and hence permitting quite good export quantities of recovered paper. This allowed fairly good prices to be maintained locally and at the European level.
As is the case every year, August was a month of low collection rates - only this year the downtrend was more significant than ever. The situation changed again at the end of August, just like in the spring, as some paper mills have struggled to meet demand and to satisfy the orders on their books. Asian buyers experienced difficulties in loading all of their shipments in a single month, leading to a quite tense demand situation in early September and thus to a rising market once again.
As for the final quarter of 2020, it is hard to make predictions. China has definitely stopped its recovered paper and board imports; Indonesia is imposing more red tape which can make some traders reluctant to export there; and Turkey has announced new trade barriers that force local paper mills to source at least 50% of their recovered paper consumption domestically. Large volumes will end up in other Asian countries, giving them a wide choice of suppliers which might encourage them to try to lower prices - even if it means they end up taking back many paper reels from China. On the European side, new German capacities have started to produce and to stockpile; these new paper mills should be able to consume most of the surpluses from neighbouring countries.
As regards deinking and 1.11, volumes are quite high. UPM Chapelle Darblay has stopped its machines and there is still no offer for the site. High grade paper producers are still recording low production volumes although their activity levels are slowly improving again, leading to slightly higher prices over the summer. Norske Skog Golbey has announced a new project to convert a machine to produce test liner within a few years.
The higher grades are competing with pulp at very low prices - in some cases even cheaper than 3.18.
It is really hard to say what is next for the markets. The ups and down of recent months have all been sudden - within a week or two on every occasion. However, demand remains quite good both from Asia and from Europe (thanks to Germany).
With the high pressure on reels, paper mills are expected to try to lower prices whenever they can - but we can still use the argument of low availability and stocks. The upcoming new regulations can also play a role.
Let’s remain vigilant and hope for a dynamic end to the year despite the constant impact of COVID-19 on the entire economy.
