It’s not just waste paper traders who monitor the ups and downs of waste paper OCC prices.
Old corrugated containers (OCC) is a globally traded waste paper grade that’s the main material used for shipping and merchandising goods. It’s considered the bellwether grade because it can give useful signals about where the wider market is heading.
Investors, fund managers and stock market traders all monitor OCC prices because it’s one of a range of health indicators for the global economy.
What is waste paper OCC?
Those brown cardboard boxes that arrive on your doorstep are probably OCC. The entire supply chain is full of OCC because it’s light, cheap, and easy to recycle. Once used, most of it gets fed right back into the recycling system to live again as a new paper product or cardboard container.
OCC is intimately connected to the daily rhythms of consumer-driven economies because it’s what everything gets shipped in. It’s a measure of economic health, and potentially a predictor of impending recession.
What do waste paper traders do?
Waste paper traders make their living by buying used cardboard or other grades of paper and selling it on at a higher price to paper mills which are mostly overseas because energy is cheaper there. These often enormous mills use bales of shredded OCC as raw material to turn back into boxes and packaging.
The waste paper trader is basically the middle-man who buys OCC from suppliers who might have relationships with supermarkets, for example. The trader then arranges for its delivery to the mill in the hope of making a profit.
So on the one hand there’s supply, and on the hand there’s demand. The trader tries to build trusting relationships with both sides of the equation, while juggling the costs and risks of shipping containers halfway round the world to places like Malaysia and India. Margins are typically very thin – and a lot of things can go wrong. It’s certainly not a job for the faint-hearted.
What do OCC prices tell us?
Ok, so what are traders and investors looking for when they open their laptop, sip their tea and check in on the price of waste paper OCC? Basically, they’re trying to figure out what’s happening to supply and demand.
If OCC price is low, this might have something to do with supply.
The supply of recyclables comes mainly from consumer-led economies such as the UK, EU and U.S. If consumers are buying and consuming plenty of goods in these parts of the world, they are also generating plenty of OCC for recycling, which means that prices might go lower. So the theory goes.
On the other hand, if consumers stop spending, the supply of OCC for recycling drops, and prices might go up, but only if demand is there. If OCC demand is low and consumption is low, price drops can be dramatic, which is rarely good news.
Demand or supply?
Clearly then, demand for OCC is just as important as supply – if not more so. You need buyers – otherwise all that OCC ends up sitting in warehouses, which costs money and leaves the trader short of cash. Traders hate being short of cash, because if they run out of cash they go bust.
So let’s say the U.S. economy is growing and sucking in lots of imported goods from places like Malaysia or India. Those Indian paper mills will be working hard to produce the packaging for their busy exporters. They’ll also be buying all the used OCC they can get their hands on from places like the UK to feed the mills.
In other words, demand for bales of uncontaminated shredded OCC in South East Asian markets will be high, sending prices up. When the UK supply of recyclable OCC is tight, prices might go higher still if mills start bidding against one another.
Is it that simple?
No. Price signals can be contradictory. Time-lags can play havoc with your predictions. And there are a host of other factors that can influence the price of secondary raw materials, such as the fluctuating cost of energy, the outbreak of war, and natural disasters such as typhoons and pandemics that disrupt the waste paper OCC supply chain and impact demand.
But if you get it right, and make use of modern commodity trading risk management software, there’s money to be made.
