Red Sea Issue : Longer shipment transit times creates a worry for the mills in India

The attacks on commercial vessels and ongoing tensions in the Red Sea have adversely affected an overseas trade which was said to have “flourished” earlier in the fourth quarter of 2023, it is reported in the latest BIR World Mirror publication compiled by the global recycling organization’s Paper Division.

The immediate impact has been extended transit times to export destinations in India and elsewhere in Asia as shipping companies have opted to divert vessels around the southern tip of Africa. There has been an upward spike in freight costs as well as reports of cancelled orders and revoked vessel space bookings. From the buyers’ perspective, uncertainty over deliveries has added a new complexity to their raw material procurement planning.

In many parts of Europe, recovered fibre market conditions in early 2024 have been similar to those prevailing for much of 2023, with low demand from the mills and weaker collection rates. In late December, many paper and board manufacturers implemented longer shutdowns than normal around the holiday period, contributing ultimately to an enforced price reduction on the lower grades despite resistance from sellers, it is reported from Germany.

Weak demand and falling prices are said to have become part of daily life for those companies handling the high grades. Despite low collection volumes, strong competition from pulp is said to be making substitutes difficult to sell.

According to feedback from Scandinavia, one positive has been the increase in demand experienced in the insulation sector over the final quarter of last year, for both new construction and renovation.

The contraction in demand continued throughout 2023 for producers in Turkey, particularly for brown paper mills where capacity utilization rates decreased to typically 70%. Contributing factors were the country’s high levels of inflation as well as the effects of the February 2023 earthquake. Paper mills and recovered paper collection companies have been unable to raise their sales prices sufficiently despite increasing costs and falling production volumes.

Recovered paper availability fell around 20% across Turkey last year and stock levels are therefore at minimum levels for mills and recovered fibre businesses. With winter conditions adversely affecting the quality of Turkey’s collected volumes, recovered fibre imports remain an essential component of its paper and board industry’s raw material mix.

Across in the USA, decreasing supplies were behind the January increase in Fastmarkets/RISI PPI Pulp and Paper Week prices for OCC and mixed paper. Domestic mills remain nervous about securing sufficient feedstock to keep their machines running and so have been bidding up prices. OCC, mixed paper and DLK are said to be much in demand across the whole of the USA.

When compared to the same period in 2022, data for the first 10 months of 2023 reveal a reduction in US recovered fibre exports to India, Indonesia, Taiwan and South Korea, as well as to Mexico where last year’s decline in shipped volumes is put at around 50%. In contrast, Malaysia and Thailand significantly increased their buying of US material.

The final two months of last year seemed to confirm a positive trend for finished product and recovered paper demand in Asia and Europe. Prices were increasing slightly despite a shipping cost increase of around US$ 200 which had been announced for January 2024 – a week before the Red Sea vessel attacks and the “war surcharge” applied by shipping lines.

Domestic market prices in Europe had been almost the same as those for export and a downtrend had not been expected for the coming months.

The surcharge of between US$ 1000 and US$ 3000 per container suddenly applied by the shipping lines blocked the loadings between the final week of 2023 and the opening week of 2024. Amid this temporary interruption, mills in Italy and elsewhere in Europe confirmed prices and volumes to ensure regular supply in the case of a rapid resolution of the Red Sea issue and a resumption of shipping, which would lead to increased competition in the form of Asian demand. This uptrend vanished a few weeks after the start of the Red Sea attacks as finished product demand and prices fell 5 to 10% when compared to their levels of the previous two months.

The significantly higher increase in shipping costs to Indian ports compared to other Asian destinations put India out of the market as sales prices had to be 30 to 40% higher than for other countries in Asia in order to be competitive.

A temporary lack of containers caused by longer shipment transit times initially created a worry for the mills in India and elsewhere in Asia but this lasted only a couple of weeks as the local recovered paper market dropped at the end of January. At the same time, more material was available in Europe despite decreasing local recovered paper demand.

China, the main engine of the Asian economy, seems unlikely to see a recovery in the near future, with low consumption, higher costs and a lack of orders for finished product creating a fight for survival across the entire industry.

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