Attached is your PO for deliveries of recyclables during January 2019.
The market for recyclables in January has improved modestly. This results from increased demand for both OCC and MIX. We believe this is occurring because of capacity expansions for OCC consumption and a change in consumption patterns for MIX as follows:
AsRISI published during December, fully one-third of the announced paper mill expansions have been completed. This means a significant number of mills around the world are buying more OCC than was their past practice. The increased buying is a demand shift which is starting to impact the inventory of available OCC supply which, in turn, is now moving the price higher as we have expected and hoped for all along. Said differently, Pioneer is now receiving more inquires for OCC supply than the volume we expect to generate during the month. This is very good news!
For MIX we are seeing a change in consumption patterns by existing mills, especially locally, that is also shifting demand. This shift in demand results from OCC mills substituting MIX for OCC. Economists call this,predictably, the “substitution effect”. It refers to consumers, in this case mills, who substitute alternatives products or materials when the standard product or material is unavailable or when the price difference between the original material and the substitute is very high. (Think substituting chicken for beef when beef prices rise significantly- you still get your protein but at a lower price)
In addition to the price substitution effect for MIX there is a technical factor at play for substituting MIX at OCC mills. This relates to the decline of newspaper in the collection cart. Newspaper is a groundwood paper with both a lower brightness and fiber strength than Kraft paper. The MIX which MRF’s produce today has very little newspaper in each bale produced. OCC mills like this because they understand that the high content of Kraft fiber in a bale of MIX of today produces a stronger more brighter sheet than it did just a few years ago. Locally, we now know of two mills in the Northwest who are taking advantage of our “new” MIX by substituting it for OCC. This is also very good news!
As for the future, we must admit that we are uncertain if the current improved demand patterns for OCC and MIX will be enough to overcome the normal seasonal decline in roll demand. We will be watching this market dynamic very closely in the months to come and will report back to you.
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.