Paper Market Update Special Edition - Allocation and Supply Chain

July 2021 Special Edition

Paper Market News

Paper Mills Globally Going on Allocation

Over the past several days paper mills in North America and Europe have instituted a moratorium on paper orders. Mills are not accepting new orders and/or are only filling reserved orders that have already been placed and approved by the mills. These developments are the initial steps to allocation, under which suppliers allow only a certain amount of tonnage based on forecasting accuracy, consistency of program business, and profitability.

For a decade, mills have been shutting or converting paper machines to try to control the supply-demand equation. Over the past two years, more than 8 million tons of graphic paper have been removed from the North American and European markets.

The dramatic drop in demand in 2020 due to the COVID pandemic was met with even more supply reductions. However, it appears the mills have collectively overshot, driving mill operating rates above 100% and making paper nearly impossible to find. What we are experiencing now is much more than a tight market. A confluence of factors has caused markets to seemingly seize up across almost all grades. In addition to all of the recent capacity reductions, we have also seen a dramatic increase in input costs, as well as labor and logistics shortages. Mills are quoting dates into the fall if you can even get them to quote. And of course, prices have risen significantly. Planning and forecasting have become critical and having good supplier relationships have never been more vital.

No Relief in Sight for the Shipping Industry

Ocean carrier vessel arrivals from Asia are being delayed by 20 days or more, and there is no improvement in sight. Widespread port congestion, equipment shortages, and a lack of ships will push the return of some form of ‘normal’ in liner shipping back to the second half of next year, at the earliest, says one analyst.

  • Hefty new building programs and order books will cause shipyards to be full for the next 5 years.
  • Vessel size increases will put even more pressure on the land-based infrastructure – likely to cause additional congestion.
  • Demand is projected to outstrip supply in shipping for the foreseeable future, driving prices even higher.

 

China’s Port of Yantian to Resume Operations Amidst Massive Cargo Backlogs

China’s key southern container port of Yantian is expected to return to full operations following several weeks of partial closure due to a COVID 19 outbreak. However it will take months to clear backlogs of cargo, freight sources warn, especially as peak season approaches. Commenting on the wider impact of the disruptions in southern China, the world’s largest container line Maersk said the damage to already-disrupted supply chains had already been done. Maersk noted: “Fighting to get reliability back into operations and services back on schedule after the Suez incident in March, the port congestion in Yantian, with neighboring ports Shekou and Nansha also affected, is an added pain at a time where global supply chains are already stretched.”

 

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