Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

Prices of Baled #11 Old Corrugated Containers (OCC) in the US have been considered unviable since early 2023. Although there was moderate improvement in August, the question remains whether or not the industry is in recession or has missed it entirely.

By Huban Kasimi


Ryan Fox, Corrugated Packaging Market Analyst, Bloomberg LP

Prices of Baled #11 Old Corrugated Containers (OCC) in the US have been considered unviable since early 2023. Although there was moderate improvement in August, the question remains whether or not the industry is in recession or has missed it entirely. Ryan Fox, corrugated packaging market analyst at Bloomberg LP, reveals the outlook and existing trends.


Several US paper mills have been strategically restructuring their operations. The smaller or less-advanced facilities are being mothballed to make way for larger, upgraded plants. However, most of the upgraded sites will likely come online only after 2024 and 2026. This is where there could be a convergence of supply and demand. 


Ryan Fox, corrugated packaging market analyst at Bloomberg LP, highlighted that the widely discussed recession could become a reality. “Packaging companies have also lowered their earnings and sales outlook for the year. Given that such a high percentage of consumer goods is transported in corrugated packaging, it’s a good indicator of consumer behavior and economic health”, he said.

Economic prosperity is also below expectations. 


“We are seeing lower demand for corrugated packaging, and overall, box shipment volumes are likely to shrink by about 5pc this year. That is a significant reduction and could result from de-stocking,” Fox said.


“Companies bought plenty of boxes during the pandemic. In many cases, long lead times for boxes created a scenario that forced some brands to hoard resources. Even now, some facilities are sitting on high inventory levels.”


Recent trends among US retailers show increasing shrinkage and theft and a systematic reduction of store inventory. Reducing excessive inventory helps mitigate shrinkage as there is less to manage. That move also improves cash flows at retail stores since inflation has increased the value of the goods, and rising interest rates have compounded the economic effect. This reduced inventory means less OCC production from retailers, which means lower overall supply. These trends are raising OCC prices. 


“In terms of OCC, it costs less to process and turn it into new paper. Some recyclers incur fewer costs than their counterparts using virgin fiber. On the other hand, a few mills that use virgin pulp in their cardboard paper want to mix some OCC grades and augment their earnings,” he said. With box demand muted compared to pandemic highs, prices for containerboard have fallen in response. The lack of OCC supply is creating upward price pressure for recycled containerboard producers as costs have risen from near-historic lows earlier this year. 


OCC price sustainability

Over 90pc of OCC comes from commercial and industrial sources. Curbside recycling doesn’t contribute that much to supply and also has a lot of contaminated material. “A 40pc contamination rate is not unheard of,” noted Fox. Another factor influencing reduced curbside collection is the low current prices for OCC. For example, a $30-35/ton range hardly covers the expenses faced by any material recycling facility (MRF). “I think even a $80-85/ton range is a better minimum price but still may not be enough,” Fox observed.


Corrugated boxes collected from curbside dumpsters are about 8pc or less than 2mn nt (1.85mn mt), according to market participants.

In the past, several market participants have indicated that when OCC prices are less than $80/nt, it is more economical for an MRF to send tonnages to the landfill than to process them. Price ranges of $150-155/nt are more commercially viable, but curbside collection essentially remains low because it’s not mandatory in all states. Most MRFs are barely able to break even at $80/nt.


According to Fox, this is where Extended Producer Responsibility (EPR) laws could fill the gap between cost and operations and pay for increasing collections. “The goal is to increase paper recycling rates,” Fox noted. However, there is data available that does not support the theory that recycling rates could increase because of EPR laws. 


“Producers are in a Catch-22 situation at present because EPR is essentially a tax for materials being used by them to ship products,” Fox explains. “This results in ‘light-weighting,’ which changes the composition of the material in what some call, “the evolving ton”.


Known as the ‘Amazon effect’ by many participants, the e-tailer has reduced the weight of its box from 32ect to 26ect under the new trend. For Amazon, this ‘light-weighting’ leads to ‘savings’ of about 125,000nt of fiber per year,” Fox estimates. Amazon has also championed shipping goods in their own containers (SIOC) in recent history. This has led to another drop in box demand. Switching boxes with paper mailer bags reduces box demand, which may buoy the demand for kraft paper. “Thus, Amazon and other e-tailers may have cut nearly 500,000nt of fiber with these shifts,” he adds. 


Justifying increased investments in paper mills 

The MRFs continue to invest in overhauling their technology and processes despite low cardboard recovery rates. But is this practice sustainable?


Fox noted that constant upgrades are necessary. “Finding good employees is difficult, and MRFs are investing in robotics and automation. Therefore, using artificial intelligence in sorting is in line with what we are experiencing in terms of labour shortages,” he said. Millions of dollars worth of material that would otherwise have gone to landfills gets detected and sorted using AI. 


Upgrading facilities is the optimal direction instead of making losses when commodity levels are as low as now. Moreover, the size of boxes has reduced, and there are also more colour varieties, making it difficult to sort manually. 


Demand and supply imbalances

Fox agrees there is a noticeable imbalance between paper recovery rates and supply in the US. “The biggest barrier is the inadequate reporting of imported goods in our country.” Any foreign manufacturer or exporter uses paper boxes to package material, and that should ideally make it easier to include the number of boxes in each shipment. But that may not be happening. 


According to Fox, his paper recovery statistics comprise collections data that includes net ton volumes consumed by domestic mills and exported tonnages.  


Collection rates from domestic mills have been lower than expected this year, according to market participants. This has also impacted prices of recovered corrugated grades, especially Baled #11 Old Corrugated Containers (OCC). 


Circularity as an influencer on recycling rates

“Two equally important narratives have emerged in the US recycling industry. Some brands want to highlight greenhouse gas emissions reduction initiatives. This cause has global attention and is often cited by companies in their sustainability statements. Alternatively, some areas of the US are running out of landfill space, which means we have to increase circularity,” he said. Fox also noted that these two aspects are parallel and can intersect sometimes: “We have two different ideals. A company can chase GHG reductions, and in so doing, they may not have policies to reduce landfill space.” 


However, some companies chase circularity, cutting volumes that would have otherwise headed for landfills while looking for ways to reduce greenhouse gasses. “Neither narrative is mutually exclusive, but each accomplishes a specific goal. Sometimes they overlap, sometimes they don’t,” Fox observed. 


To simplify cardboard recycling rates in the US and interpret them correctly, Fox and Myles Cohen, founder of advisory services firm Circular Ventures LLC, have proposed a different theory. 


Watch this space for insights on the cardboard recycling rates in the second part of this series.