Attached is your PO for deliveries of ResMix to Pioneer during the month of June 2019.

The market for recyclables has drifted sideways for June.  Of course, the “story behind the story” is much more complex than that simple conclusion.  Please let me explain.

To begin, we did see a slight improvement in pricing for most of the plastic grades but as we all know, plastics represent only a small measure of the ResMix yield.  Paper dominates ResMix yield with around 75% of the total yield.

Turning to paper pricing the news is not good.  OCC pricing has now declined to levels below what occurred during the Great Recession.  In most areas of the country, pricing for OCC is now well below the cash collection and landfilling expense.  (MIX paper has been below these levels for some time).  The short term explanation of these lower prices for OCC is directly related to lower demand from China.  China has issued a lower volume of import permits (about 30% lower by our count) for pre-consumer OCC than last year.  As a result, this material is now overwhelming domestic mills.  With excess inventory, the domestic mills are lowering their pricing across the board.

Stepping back from the immediate situation in China, overall worldwide demand for containerboard is weaker than last year.  Mills are taking market downtime to reduce the supply of rolls in an attempt to avoid a precipitous decline in roll pricing.  International Paper and Westrock took 820,000 tons of market downtime in just the first quarter of this year.

This development is troubling indeed.  Alan Greenspan, former Federal Reserve Chairperson, famously used containerboard roll production as a leading economic indicator for determining the appropriate level for interest rates.  Lower roll production is likely a leading indication that the world economy has slowed its growth as compared to last year.  Given the tariff war the US is waging and the uncertainty created by Brexit,it seems likely that we will soon hear of slightly slower growth from many of our trading partners as well as in the United States.

With regards to MIX, the most significant development is that Indonesia announced June 1st that they would insist on 100%inspection of incoming shipments.  The details of their inspection protocol were so onerous that virtually all shippers have declined to participate.  To our knowledge, recyclers nationwide are not currently shipping to Indonesia.  Like the decline in demand from China, zero demand from Indonesia will certainly tend to lower pricing for MIX going forward. 

While the prospects for a near-term improvement in paper pricing are modest, Pioneer continues to believe the mid to long-term outlook for pricing is much stronger.  In late May, CorrVentures announced they were building a new 300,000 tons/yr. mill in upper state New York.  By our count this brings the total number of capacity addition announcements to twenty-four.  All other things being equal, when all of these projects come online in the next 18 to 36 months, demand for recycled paper will undoubtedly increase and pricing with it. 

Until then, please know that Pioneer is working harder than ever each day to find both movement and the best pricing available.  We appreciate your business.

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