According to RISI, a pulp and paper industry data company, recycled container board- material made from wood fiber and used to make familiar items such as cardboard boxes- has seen steady price increases since the beginning of last year, spiking suddenly in November of this year. For comparison, since January 2015, scrap paper grades have increased RMB 830-880/tonne, while November 2016 alone accounted for an RMB 650-700/tonne hike. How did this happen? Those in the industry cite cost pressures from rising coal and scrap paper prices, supply issues, and unexpected demand.
The price of coal, used to keep the lights on and the machines running, has seen dramatic increases since the fourth quarter of last year, jumping over 31% since October 2015. Despite increased winter demand, the National Bureau of Statistics states coal production is down 10.7% so far this year- likely due to government supply restrictions to address environmental issues.
Both US and China old corrugated containers (OCC) prices have been on the rise as well. While the Hanjin Co. bankruptcy has hiked freight costs, new Chinese regulations limiting the size and weight of truck loads means higher local transport costs. Other factors contributing to OCC price hikes, include difficulty sourcing imports due to heightened US demand, panic-buying of domestic materials, and price speculation.
Now, let's talk about the supply and demand end. In a seemingly flush market, inventory levels were actually depleted for both scrap producers and box makers, supposedly due to downtime caused by a G20 summit held in Zhejiang Province and anticipation of future conferences. Converters may also be missing profit margins and are, therefore, keeping inventories low. Other issues cited as a cause for tightened supplies, include surprise leaps in fall demand, plant closures due to environmental restrictions and low profitability, and frenzied purchasing in anticipation of further price increases.
Through quick analysis, RISI has predicted container board prices will hover around the current average until January or February, when prices are expected to decrease by half the upturn seen.
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