Vietnam Lockdowns Tighten OCC Supply as Global Waste Paper Prices Stay High

In Vietnam, waste paper has turned into a tight-supply feedstock, with prices climbing steadily and a year-to-date gain of roughly 60%.

COVID-19 controls and restrictions imposed by Vietnam’s government have kept reducing the OCC volume generated by local factories and households, prompting the country to keep expanding waste paper imports. Since the beginning of 2021, the price of OCC shipped from various countries to Vietnam has jumped by about 60%.

OCC is indispensable to corrugated carton production. With supply becoming increasingly scarce, its price has increased by about 20% since April. Vietnam’s OCC imports from global markets are also continuing to rise, with Japan’s exports to Vietnam up by roughly 60%.

Vietnam was once regarded as a model in Asia for its COVID-19 response, but the country now records an average of 10,000 new infections a day—a sustained increase that is placing heavy strain on its healthcare system and infrastructure.

As the more transmissible Delta variant swept through the region, Ho Chi Minh City and other parts of southern Vietnam imposed stricter lockdowns. In late August, the Vietnamese government began deploying troops to Ho Chi Minh City and distributing food and other essentials to residents.

Under COVID-19 control measures, factories in Ho Chi Minh City and southern Vietnam have been left nearly unable to operate unless workers stay on site to eat and sleep. Some companies are running with only 30%–50% of their usual staff. Many other plants have halted production altogether, sharply reducing total OCC generation.

Households are another OCC source. Yet individual recyclers who normally collect OCC and sell it to waste paper depots have been barred from entering coronavirus-affected areas. Household supply in southern Vietnam is estimated to have dropped by about 80%. “There are no cardboard collectors left on the streets,” one industry insider said.

Meanwhile, OCC demand across Vietnam remains robust. Although China has banned imports of all waste paper on environmental grounds, it has raised its pulp imports. In recent years, Vietnam has added or expanded many facilities that convert OCC into pulp for export to China.

Supply of these used corrugated cartons is now extremely tight. Because of COVID-19, output of newly made corrugated cartons in southern Vietnam has also fallen by 30%–40%. The material now sells for about 7,000 Vietnamese dong (31 US cents) per kilogram in the region, up 20% from April, before the current infection wave.

“Even if it costs more, we are working hard to ensure customers receive high-quality corrugated cartons,” one trading company said. The company is now sourcing more material from northern Vietnam, where the pandemic hit less hard. Importing material is another option. Vietnamese government statistics show that Vietnam imported 2.91 million tonnes of used corrugated cartons in 2020, about 13 times the 2016 level, as most OCC no longer imported by China now enters the country.

In recent years, roughly half of the shipments originated from Japan or the United States. In 2018 and 2019, OCC imported from the US accounted for 30%–40% of total imports. In 2020, each company exported about 790,000 tonnes to Vietnam.

Vietnam’s demand has been a boon for Japanese exporters affected by China’s waste paper import ban. In July, goods shipped from Japan to Vietnam were priced at 27 yen (25 US cents), about 60% higher than at the start of the year. “Export prices to Vietnam tend to run higher than those to other countries,” a wholesaler said.

Shipments to Vietnam are also drawing down waste paper inventories across Japan. Waste paper wholesalers in Tokyo now pay 22% more for OCC than in April. How long this boom can last, however, remains uncertain. Vietnamese manufacturers’ operating rates are at historic lows, while China’s containerboard production is sluggish due to pandemic-related restrictions and concerns about an economic slowdown. “It is still unclear whether Vietnam’s waste paper prices will rise further,” one wholesaler said.

Waste Paper Prices Keep Rising in Europe and the US, Lifting Containerboard and Kraft Linerboard

Turning to the US market, the average domestic OCC price has climbed by about US$20 since August to US$183 per tonne overall—US$90 above last year’s average—leaving many wondering how long the run will last.

Global COVID-19 lockdowns spurred a sharp rise in online shopping in the first quarter of 2020, which in turn lifted demand for corrugated packaging. Although the shift was largely government-mandated, consumer buying habits have undergone a structural change as shoppers become more accustomed to—and even prefer—online purchases. According to the US Bureau of Labor Statistics’ producer price index for corrugated box manufacturing, the index for corrugated packaging prices rose to 369.4 in May from 342.1 in the same month of 2020.

Higher corrugated packaging prices may pressure many companies that rely on packaging to deliver goods to online consumers, especially as demand remains strong and further lockdown rounds unfold worldwide. From Q1 2015 to Q1 2020, US containerboard capacity grew at a slow and steady pace overall. Yet the latest data show papermakers are expanding capacity at an unprecedented rate to meet surging corrugated carton demand; that base paper is then converted into corrugated board.

Stronger demand for corrugated packaging has pushed prices to record highs, now surpassing the peak reached in autumn 2020. These gains coincide with record waste paper prices. A growing number of economies are introducing import regulations that directly affect the sector; China’s ban on OCC imports early this year is a prime example.

Nevertheless, higher raw material costs and stronger demand ultimately drove containerboard prices up. This is evident in the roughly US$153 per tonne benchmark grade average last month, which rose by about US$20 to an average of about US$183 per tonne. Transportation adds another layer of price pressure, having risen by about 15% between Q1 2019 and Q4 2020.

In Germany, kraft linerboard supply remains tight, so sellers are considering price increases from October and have already begun negotiations for New Year deliveries. With the kraft linerboard market tight, talks for the coming year are underway, and the corrugated board industry and its customers hope to secure reliable supply in early 2022.

In the UK, packaging paper and board prices continue to rise on strong demand and already high—sometimes still climbing—waste paper prices. In France, robust demand for packaging paper and board dominated during the August holiday period. Against good demand but limited supply, kraft linerboard producers again raised prices for brown and white kraft linerboard. Manufacturers hope to implement further increases for September and October deliveries.

Why Are OCC Prices So High—and Where Are They Headed?

Looking at the raw materials used for containerboard, the impact of higher recycled fiber prices stands out. This stems mainly from lower OCC recovery rates during the pandemic: large stores cannot generate OCC at pre-COVID levels, collection from consumers’ homes is more expensive, and recovered waste paper volumes look entirely different.

The global market remains highly uncertain and fluid. As countries adapt to new regulations and continue responding to the evolving pandemic, global OCC prices are likely to stay elevated in the near term. Still, corrugated packaging growth will be much slower than in 2020, and OCC prices are not expected to remain high for long. Fisher International expects prices to peak before beginning to decline in the coming months.

Source: China Packaging Network (pack.cn); original link: http://news.pack.cn/show-378461.html