Attached is your PO for deliveries of ResMix for the month of July 2019.
The market for recyclables haschanged little over the past month primarily due to stronger pricing for OCC which was enough to offset declines in some of the metal and plastics. The improvement in OCC is attributable to the Chinese reentering the market to purchase post-industrial (as opposed to post consumer) cardboard while their import permits are still valid.
When the Chinese mills grab this super clean material it means that domestic mills have less total material to draw from (supply curve shift to the left) which results in higher pricing for all of the OCC market including MRF OCC. Unfortunately, as we know from recent past experience, the Chinese buyers are fickle and could leave the market just as quickly as they entered. Despite this, we are thankful for their current participation.
As is often the case, the most interesting aspect of the current market is the “story behind the story.” I am referring to the market for MIX which didn’t move at all this month. This lack of price movement was unexpected because Indonesian buyers have all but left the marketplace due to government requirements for 0% (yes, zero) prohibitives in MIX bales combined with 100% on-site inspection of each container shipped. These quality expectations are simply unattainable with current sort systems and so most MRF’s have stopped shipping altogether rather than risk a severe claim.
The voluntary departure from the market has shifted demand lower (shift to the left) which should quickly lower the price. We believe pricing hasn’t fallen because the lower demand from Indonesia has been replaced by new demand from Myanmar where Lee & Mann, a large Chinese paper company, has recently started a new recycled pulp and linerboard mill. Additionally, as we mentioned last month, Nine Dragons is making new purchases of MIX for resorting in other Southeast Asian countries. Good news indeed!
Logic leads us to believe that the Indonesians will be forced to modify their purchasing specs before too long when they realize that little to no paper is available to supply their mills. If this occurs, we could finally see in increase in pricing attributable to both Indonesia and Myanmar buying at the same time.
With regards to the near future, while recent events impacting MIX and OCC have beenfavorable, we still do expect the normal seasonal drop in demand that is just a month or two away, to overwhelm the increase in demand from Myanmar and Nine Dragons which is likely to lead to modestly lower pricing by Halloween.
For the long term, we remain strongly bullish as there are at least 16 mill expansions projects on the horizon, all of which will increase demand for recyclable material.
As always, rest assured that Pioneer will be working overtime to get the best pricing available in the marketplace each and every day. We appreciate your business.
Another Shameless Plug- Dave will be speaking August 14th at the monthly Oregon DEQ meeting and again August 28th at the Resource Recycling Conference in New Orleans. You are invited!