The market for recycled commodities has declined significantly for January. This results from a continuation of a ban on new shipments to Vietnam and the normal decline in seasonal demand we experience every year at this time both of which were highlighted in our comments last month. Let me briefly review each of these factors.
Vietnam by banning, for at least a temporary period, receipts of recycled paper has shifted demand lower (to the left on a demand supply graph) in the same manner that China did just a year ago. This shift in demand is now significantly impacting the price of MIX paper as the mills that remain buyers of MIX know they can pay less for the material and still obtain all they need. Until, and if, Vietnam returns to the marketplace we can expect MIX paper pricing to be lower, all other things being equal.
As most of us all well aware, our industry experiences a seasonal decline in demand related to the simultaneous end of the harvest, Christmas, irrigation and landscaping seasons. Of course, this drop in demand influences pricing lower. The good news here is that we can expect a return of this seasonal demand and the better pricing that comes with it, sometime in the Spring.
Last month we also highlighted the expiration of existing import licenses to China. We are happy to report that China has already reissued many of these licenses. As a result, we expect shipments of pre-consumer wastepaper to continue unabated which removes at least one uncertainty in the marketplace.
As for the future, we expect both the lack of shipments to Vietnam and the decline in seasonal demand to continue influencing the overall market downward for the next few months. While the short-term outlook for pricing is lower, we remain confident that both the mid and long term outlook is much stronger due to the many announced recycled mill expansions projects that will come online in 12 to 24 months. (See your December Market Message for a link to a complete list of these projects)
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.