The market for the majority of recycling commodities has moved upward in June, including for MIX paper which is very encouraging.
Let me try to explain how this occurred, beginning with the plastic grades. A significant portion of recycled plastics finds its way to the construction, landscaping, irrigation and outdoor furniture industries. All of these industries experience a seasonal increase in sales as the weather improves. This increase in sales flows back to the resin pellets manufactures for increased purchases of recycled resin pellets. With this shift in demand (to the right) pricing has moved upward across all of the plastic grades.
To understand pricing for the paper grades this month it is important to distinguish between MIX and OCC because of recent Chinese trade actions. MIX, which China no longer purchases, has increased in value for June. This increase is related to the substitution effect as well as seasonal factors.
I believe the seasonal factors are well understood by now but let me briefly review them. This time of year we typically experience a decline in the generation of recyclables while simultaneously the paper mills experience an increase in orders for packaging used in the harvest season and for Christmas items. These factors yield a decrease in supply and an increase in demand. We all know what that means! All other things being equal, pricing is bound to move higher.
The substitution effect for MIX is related to the very attractive price of MIX paper which has tempted mills to substitute MIX for other grades of paper. Additionally, we suspect the very low price for MIX has displaced some domestic supply in countries other than China.
The good news for our recycling programs is how quickly the seasonal factors and substitution described above have overwhelmed the changes in China. Just a few months ago Pioneer was worried about finding any movement for MIX and now the market price has actually moved up modestly. This is clear evidence that the global free market for recyclable commodities is both dynamic and very efficient!
The market for OCC, which China does still purchase (in a manner of speaking), is a more muddled picture because of recent actions by the Chinese. Specifically, the Chinese government announced earlier this week that they would not only require 100% inspection of recyclables at their ports (this action was taken in May) but would, beginning June 1, no longer allow established trading companies to self-inspects their loads here in the U.S.. Rather, the government is mandating that all US. inspections must be performed by, and only by, CCIC government inspectors.
This new requirement has, at least temporarily, halted the majority of the remaining exports to China while exporters frantically try to arrange for a CCIC inspector to examine their loads. Given the relatively small number of inspectors currently in place in the U.S., we expect shipment delays to China will be significant in the near term. The expected delays should increase the available supply of OCC to non-China buyers and domestic mills with a corresponding decline in price a significant possibility for next month.
Fortunately, Pioneer was able to secure the majority of its OCC orders for June at higher prices. The higher pricing is included in your June Remix PO.
With regards to the future, both the world and U.S. economies continue to perform extremely well which is creating a significant demand for packaging materials that cannot and will not be denied. This macro environment makes us optimistic for future pricing in the long term.
Regardless of market conditions, rest assured that Pioneer Recycling is always working hard to secure the very best pricing the market has to offer. We appreciate your business.