Pricing pressure to continue for short term
The supply of recyclable materials is improving as retail stores generate more waste from improving economic activity, said Quebec-based company Cascades Inc.
At the same time, the company is hoping that Chinese government efforts to expand recycling will eventually provide relief from the mounting cost of fibre Cascades uses to make packaging and tissue products.
“Short-term, obviously, there will be pressure on pricing because China’s structure for collection is not good at the moment,” said Mario Plourde, president of Cascades Specialty Products Group.
The company said its third-quarter profit fell by nearly 12 percent due to higher raw material costs. Cascades said higher Chinese demand is expected to push fibre costs even higher over the next few months.
The cost of used office paper is just short of a record high set in 2008 before the global recession and the cost of old corrugated containers increased 20 percent in October from the third quarter.
Paul Quinn of RBC Capital Markets said Cascades could face an additional $20 million in fibre costs in the coming quarter.
Quinn noted he was skeptical China would substantially increase its already very high recycling rates. The result would be sustained higher fibre costs.
“The only time that we’ve really seen them come down is when you get a big contraction in the economy, so you’ve got to hope for 2008-style recession,” he said.
Cascades produces, converts and markets packaging and tissue products that are composed mainly of recycled fibres.