The market for recycled commodities has declined modestly for December. This results from a variety of factors including the normal seasonal drop in demand this time of year, the expiration of the few remaining import permits to China and the decision by Vietnam to stop all imports of MIX paper. Let me review each in turn.
Each year our industry is impacted by the reduction in demand for recyclable commodities related to the end of the Christmas shopping season and the end of the outdoor irrigation, landscaping and harvest season. Simultaneously, the supply of recycled commodities, especially paper, increases with additional ads and circulars for Christmas shopping present in each delivered paper. This simultaneous increase in supply and decline in demand lowers our pricing each year at this time. If history is any guide, we can expect these factors to reverse late first quarter or early second quarter of 2019.
Also impacting the market and mostly unique to this year has been the expiration of the few remaining export permits to China without the issuance of new permits for 2019. This will reduce demand for pre-consumer OCC and push this material into the West Coast domestic market which should impact pricing for the OCC we produce. At this writing, it is unclear when the new permits, if any, will be issued.
Of special note is the closure of the importation of MIX paper by Vietnam. When China banned MIX at the beginning of 2018, Vietnam stepped in to accept many of the MIX shipments that were previously going to China. This created significant congestion at their ports which are infrastructure lacking. It is unclear at this time if Vietnam’s action is just related to this congestion at their ports or their sense that the quality of MIX paper just presents to many problems for them.
To date, China, Vietnam and Taiwan have all stopped deliveries of MIX. Pioneer is worried that we may be temporarily moving to a situation where their will not be enough demand worldwide for MIX at any price. Certainly, this was our concern a year ago with the change in China and now we can’t help but think it’s “déjà vu all over again”.
Despite our worry, we are happy to report that we have secured enough MIX orders to meet all of our needs through early January. As you might expect, we will be watching this situation closely and will let you know if our outlook changes significantly.
Turning to the future, I direct your attention to the attached list of mill expansions and conversions recently published by the Washington Refuse and Recycling Association (WRRA). This list is a clear expression that entrepreneurs and established paper companies alike are rapidly responding to the packaging paper supply gap that China created. These companies understand that the demand for packaging papers remains unabated and must be met. They are pledging their own investment capital to do just that! For this reason, we are very optimistic about the mid to long-term future of recycled paper pricing.
As always, please know that Pioneer is working very hard each day to both find the best pricing and provide you the best service available today. We appreciate your business.