Following market volatility, will OCC prices return to ‘normal’ in 2025?
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After old corrugated container prices skyrocketed in 2024, analysts anticipate a return to more normal conditions in 2025 — whatever normal means anymore in today’s environment.
This plays into packaging producers’ bottom lines as they work to balance efforts to boost recycled content with higher input costs. In December, OCC prices fell 16% year over year to $66 per ton, and dropped 11% month-over-month from November, according to a Jefferies note to investors on Dec. 17. The firm cited port strikes and lower-than-expected demand as reasons for the price dips, which followed a jump early last year. Jefferies put the average OCC price at $74 per ton in December and expected it to reach $76 per ton this month.
Exports have pushed up OCC demand over the past four weeks, and consequently prices on both the East and West coasts have increased $10 to $15 per short ton, according to Garrett Mason, director of recovered paper, and John Litvay, partner, at pulp market intelligence and price index firm TTOBMA. It's not yet clear if the increases are solely due to true product demand, or to a combination of that and mills attempting to get ahead of a potential port strike.
Domestic buyers had high inventories going into the holidays, but buying has since increased in several regions, Mason and Litvay explained.
OCC prices have decreased and then flatlined the last four months, said Chaz Miller, founder of Miller Recycling Services. But that's not unusual given traditional seasonal cycles of box generation and consumption: Boxes need to be manufactured prior to the busy holiday shipping period, and then production tends to drop off.
“It's really pretty normal to go down the last couple of months of the year,” Miller said. “We just don't need as many boxes [produced] in December as we did in September. ... So your production starts to go down in October and November and December — economic downtime is very common."
Many observers have kept tabs on the OCC market to determine whether or how much it would renormalize following notable increases in 2024. Michael Roxland, senior paper and packaging analyst at Truist Securities, cited in multiple notes to investors in summer and early fall 2024 that OCC pricing was up 245% compared with January 2023.
Fiber packaging manufacturers that use OCC as feedstock repeatedly cited higher prices for OCC and other inputs as a leading reason they repeatedly raised prices in 2024, and again as of this month .
But in an Oct. 27, 2024, update, Roxland pointed out that OCC prices were coming down and recycled board producers therefore “may have difficulty implementing [a] price increase without continued and more notable demand improvement, particularly as OCC pricing has declined ~22% since June.”
The new box factor
The new box market directly influences the OCC market. And the OCC market plays a significant role in the overall packaging landscape.
Consider that “OCC is generally the largest packaging material generated in the marketplace,” Myles Cohen, founder of consulting firm Circular Ventures, said during a Wednesday webinar hosted by the Recycled Materials Association.
“You can't have OCC, old corrugated boxes, without new boxes," said Ryan Fox, corrugated packaging market analyst at Bloomberg Intelligence, during the ReMa webinar. He anticipates a slight increase, up to 1%, in box shipments for 2025, but not a huge bump.
While signs point to a recovery in box demand following a slump, in part due to customer destocking after a pandemic-era boom, expectations aren’t for a new surge.
“We're hoping that we can see the trend get back to where it was from 2010 through 2019, where there's just a slow, gradual increase that is manageable,” Fox said of the projected box demand recovery.
However, multiple analysts have flagged excess containerboard and boxboard capacity in the market that they believe will be removed soon. Observers expect manufacturers to close aging mills as the new ones come online.
“It's kind of inevitable. When you get this new capacity online, it just has better economics behind it,” Miller said. “ We're starting to get back to more of a true supply and demand balance.”
George Staphos, BofA Securities research analyst, said in a Jan. 6 outlook for 2025 that he expects about 1 million tons of capacity to be removed this year and next. And Gabe Hajde, senior analyst, packaging and paper equity research, at Wells Fargo Corporate & Investment Banking, said at a conference in October that his group identified 2.5 million tons of containerboard capacity that could be removed from U.S. producers' footprints over the next five years. These predictions are in addition to the capacity that has already been removed in the last two years, following a period of increases.
OCC outlook
Looking ahead through 2025, TTOBMA's full-year average price outlook for OCC "is very similar to 2024 across all regions and export," Litvay said.
Despite the recent volatility — price spikes and then the monthslong decline — some observers suggest that OCC's price declines in recent months indicate the market could be returning to more normal trends in 2025.
"'Normal' has been so rare,” Miller said with a laugh. “I think prices will go back up in the spring. And, barring the unexpected, I think we're going to be back at a more normal curve.”
That being said, a significant wild card is about to be played: A new president and the potential for tariffs, among other changes.
"Whenever you have a new administration, there's always an element of uncertainty in the economy," Miller said.
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