Paper giants foresee continuing rise in OCC prices

OCC heading into a pulping machine at a Pacific Northwest paper mill. Four major recovered fiber companies recently detailed their outlooks for the future of OCC markets. | Jared Paben/Resource Recycling

Some of the largest consumers of fiber bales enjoyed low OCC prices during the second quarter, giving them a little margin relief amid an otherwise tough business environment. As the year progresses, they’re expecting to pay more for recovered fiber, however.

Packaging and tissue products maker Cascades sees that as a good thing, noting that price increases will help the company’s suppliers.

“Marginal upward index price adjustment in the quarter will support more sustainable recycling supplies,” noted a recent Cascades financial presentation. “Anticipate stable market dynamics to persist in Q3.”

The following are some recovered fiber market takeaways in recent earnings releases from WestRock, International Paper, Cascades and Graphic Packaging International. Those companies all operate paper mills that consumer recycled paper from MRFs and other sources.

WestRock, which uses millions of tons of OCC and other recovered fiber each year to produce containerboard and paperboard, enjoyed the benefit of low recycled feedstock prices during the third quarter of its 2023 fiscal year (the quarter ended June 30). During that time, the company’s cost of goods sold dropped by about 6%.

That happened for numerous reasons, including the company simply selling less product year over year, but cost deflation also played into it, according to the company’s quarterly report.

“Net cost deflation consisted primarily of lower recycled fiber costs, energy costs including hedges, virgin fiber and freight costs, which were partially offset by higher wage and benefit costs, and chemical costs,” the report stated.

For the company’s fiscal fourth quarter, which is July-September 2023, WestRock expects “sequentially higher recycled fiber costs, slightly higher energy costs and moderately lower costs of virgin fiber and chemicals,” according to the report.

Another massive consumer of OCC, International Paper, which bought 4.7 million tons of OCC and double-lined kraft paper in 2022, reported steadily rising OCC prices from the first to the second calendar quarter of this year.

In fact, prices for OCC increased 4%, while prices for wood, natural gas, electricity and chemical composites decreased 4%, 37%, 6% and 10%, respectively.

Cascades, a packaging and tissue manufacturer with plants in Canada and the U.S., found that OCC prices were down 66% in the second quarter on a year-over-year basis, but the commodity was 42% more expensive than during the first quarter of this year.

Meanwhile, prices for sorted residential papers in the second quarter were down 83% year over year, but they were more or less flat from the first quarter.

According to a company presentation, OCC markets were stable during the second quarter, with an ongoing decrease in exports and favorable seasonal generation. Cascades reported it had good inventories of OCC at its mills, and logistics problems continued to ease.

The companies also discussed mill opening and closings that have affected recycling markets, as well as their overall plant downtime and financial results.

Cascades found that feedstock costs may have been down during the second quarter, but any benefit was erased by lower selling prices for the finished containerboard.

Overall, Cascades’ containerboard sales totaled 562 million Canadian dollars (about $418 million U.S.; all dollars below converted to U.S.), down 1% year over year but up slightly from the first quarter. The company’s operating income from the containerboard business was $46 million, down 10% year over year but up 63% from the first quarter, according to a quarterly report.

“Slightly softer results in the Containerboard segment largely reflect lower index-linked selling prices, the effects of which more than offset the beneficial effect of lower raw material costs,” Mario Plourde, president and CEO of the Quebec-headquartered company, said in the quarterly report. “As expected, Containerboard results include costs related to Bear Island as the facility continues to be ramped up.”

Cascades undertook a major retooling of its Bear Island mill in Ashland, Va., converting the facility to manufacturing recycled lightweight containerboard, the first roll of which came off the production line in May. In the latest quarterly report, Cascades’ noted the final capital investment for the project was about $525 million U.S., up from the original late-2020 estimate of $380 million U.S. The cost increase was due to cost inflation, construction delays caused by labor and material availability, and changes required to the original construction plans.

According to a press release, Cascades will host a tour of the Bear Island mill and an institutional investor day on Sept. 14.

Graphic Packaging International (GPI), which purchases about 1.4 million tons of recovered fiber per year, provided details about specific mill projects. First, GPI is building a major coated recycled board (CRB) mill in Waco, Texas. That mill will have equipment similar to what is installed at its Kalamazoo, Mich. mill, which produces high-quality containerboard at a significantly lower cost than older machines.

According to a press release, GPI spent a total of $189 million in capital expenditures during the second quarter, up from $138 million during the second quarter of 2022, or up by $51 million. That increase was explained by the build-out of the Waco mill. The company is pouring the concrete for the recycled fiber warehouse floor, and the finished products warehouse foundation and floor pads have been completed. GPI has ordered 85% of the equipment for the mill, and it has filled key mill management positions. The facility is slated to open in late 2025, with an estimated total cost of $1 billion.

In a presentation, the company noted that the new CRB machine in Kalamazoo, called K2, has been meeting the company’s expectations. K2 generated $60 million in earnings before interest, taxes, depreciation and amortization (EBITDA) during the first half of the year; it’s expected to pull in $80 million in EBITDA for the full year.

In terms of sales, GPI’s sales revenue for the second quarter came in at $2.39 billion, up 1% year over year. The increase was the result of raising prices because the volumes sold decreased year-over-year. The company’s net income was $150 million, up 127% year over year.

Finally, softer overall consumer demand meant that many mills took economic downtime during the second quarter. Those owned by International Paper (IP) were no exception.

Citing a drop in spending by consumers, who are reducing their spending on discretionary products and are becoming more price sensitive, IP idled the capacity to make 622,000 tons of containerboard during the second quarter. That was up from economic downtime of 421,000 tons during the first quarter.

A year earlier, the mills were running at full capacity except for maintenance shutdowns, the presentation shows.

In terms of sales of finished industrial packaging products, where International Paper records its North American corrugated box sales, IP tallied sales revenue of $3.55 billion during the second quarter, down 14% year over year. That segment’s operating profit was $284 million, down 48% year over year.

Cascades‘ economic downtime in the second quarter was higher year over year but lower than during the first quarter. During the second quarter, Cascades reported its containerboard mills were running at 93% capacity, down from 96% a year earlier but up from 91% during the first quarter of 2023.

At the same time, the company announced Aug. 10 it would completely shut down its facility in St. Helens, Ore. In April, the company said it would shut down a virgin tissue paper machine at the mill. In the latest announcement, it will also shut down a 100% recycled tissue machine there, resulting in a complete closure of the facility.

The recycled tissue machine has an annual capacity of 50,000 short tons of brown 100% recycled tissue paper.

“Over the past few months, market conditions on the West Coast and a significant decline in demand in this region for brown recycled products specifically manufactured at the facility have compromised the long-term financial viability of the plant,” Jean-David Tardif, president and chief operating officer of the tissue group, stated in a press release. “Consequently, we made the decision to end the plant’s operations.”