Forecast Warnings Are Relevant

The forecast of a decline in paper consumption of 60% by 2028 in Europe must ring a bell with every industry segment. We were all told that the paper and printing industries would continue with endless growth that industry economists confidentially forecasted. Sorry but economists do not run businesses nor face international competition and the Asian growth is Asia only,  and also vulnerable without European customers.

History will show that Q3- 2013  will be one of the weakest on record. Ramadan sat in the middle. China had a credit squeeze and Australia had a domestic paper mill closure in Queensland at the worst possible time when demand was at its lowest since late 2008. We know that Q4 will improve, however the question is by what extent, when trends are showing that manufacturing demand for deinking pulp substitutes has and will continue to fall.

The document destruction industry is one segment with consistent demand, but is now facing the difficulty for those selling basically Unsorted Shredded Office papers ( UOP #36 ), which is only a good Mixed #2, but shredded and potentially contaminated. Small shredding businesses who rely heavily on the income from their paper in lieu of service charges are now finding that few buyers are interested in Mixed. Large processors who do not sort are also finding that whilst they may have volume they lack quality, so must ask themselves what is the true price and gap that is possible with better education for source separation and some sorting which they need to do anyway. The answer is that the pricing gap is growing between best practice and Mixed.

Interestingly the few quality suppliers are breezing through the recent down turn and maintaining their pricing. With Petrie mill closing in September the printers mixed and unsorted but shredded office papers are becoming more than difficult to find a home, which will not reverse without management realising that international export markets are is not forgiving and they either sort or are rejected / pay for their lack of domestic sorting.

Our statistic show that the current surplus of whites being available to export each month is approximately 12,000 tonnes. Of this monthly volume only 5% are a true 1st White, 33% are a true SOP1, and the balance 62% unsorted UOP (7,500mt). The sixty percent plus falls into the high risk category when shredded. In fact some of the other higher grades can also be border line if the heavy colour is not removed. More colour means increased cost to bleach and more difficult to sell. Currently the difference in price between a good 1st White and a true SOP1 is only 10% or $25 per tonne. However when you drop down to Unsorted Office papers it is $80 per tonne or 40% less.

Much of the data destruction industry has been protected from this reality by forgiving domestic board mills. International markets are unforgiving and many processors will find it difficult to firstly live with the price difference and secondly to find a buyer.