Looming Downtime for Midwest Mills May Slow Demand for OCC

Baled OCC, Old Corrugated Cardboard, in 44,000-lb Loads

By Brook Edwards, Market Analyst, The Brown Sheet™

May 11, 2011 - From what we are hearing, downtime at Midwest mills in the U.S. is imminent starting this month. It appears the reason will be inventory adjustment of finished goods ordered.

We believe the mill downtime coincides with a temporary slowdown in the economy due to the domestic high gas prices experienced for the last three months. The 95-cent run-up in what we all put in our tanks has to affect the non-essential consumer goods market somehow and it is our opinion we are starting to see it with slowing demand for new cartoning material. This should affect all manufacturing worldwide, not just in the U.S.

As of this writing, fuel prices have started to drop before the official summer holidays begin, which will ultimately be a savior to keep the economy inching forward. For most of the U.S. it will take a period of time for the empty-pocketed middle and lower class to come back into the stores and resume spending. Retail stocking of the initial summertime supplies might be set back, meaning restocking of summer wares is also something that may not be in the cards, unless there are "super sales."

The bloom has also come off of the ONP (Old Newspapers) market, as we reported in the last issue of The Brown Sheet. Though most of our prices are showing $10 lower, to move loads sellers might have to take $10 more off of that when they are talking with a buyer.

The strength you see in the office grades is due to lower supply, not so much higher demand. Much of the high price office pack loads are moving south of the border into Central and Southern America where the economy is improving slightly and this grade is used heavily in the tissue and sanitary industry. The price hike The Brown Sheet is posting relates to domestic mills upping the ante to keep their suppliers true to them when in actuality they are probably buying the same amount as they have for the last few months. Office grades are truly an issue of supply and protecting one's territory. The pricing that moved the markets was on low volume meaning it would be a great time to take advantage of the increases if you have a supply of SOP (Sorted Office Paper) and WL (White Ledger).

Recyclers are still in the driverís seat if they will keep their marketingís up to date and try not to buck the market. It appears there is still a lot of time left to ride the wave and continuously market material because there is not a big supply going to fall out of the sky anytime soon.

See The Brown Sheet: May 9, 2011 Price Sheet (pdf).

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The Brown Sheet is a brief bi-monthly newsletter that focuses on the recycled fiber market and provides recycled fiber producers with the knowledge they need to negotiate fair terms and prices for their baled product.

The Brown Sheet reports price changes for corrugated and low-grade fiber products and explores current and future markets.

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SOURCE: The Brown Sheet