When it comes to the recovered paper prices published monthly by Boston-based research firm RISI, recyclers should use the figures as a benchmark only in comparing markets and in negotiations, not as an absolute, according to RISI representatives who spoke during the session “Recovered Paper Pricing” at the 2015 Paper & Plastics Recycling Conference, hosted by the Recycling Today Media Group in Chicago Oct. 14-16.
Todd Petracek, vice president of markets and compliance for RISI, presented on the firm’s methodology. He explained to a packed room of attendees that a challenge for the information provider has been recyclers relying strictly on the recovered paper prices presented each month through RISI’s PPI (Pulp & Paper International) magazine. “Anyone who is tying all of their prices to PPI … don’t,” Petracek said.
He explained how if everyone involved in recovered paper pricing based their prices on what RISI publishes, “Then the market isn’t really doing its job.”
Petracek continued, “We have trouble finding open market transactions. If people are going to use our prices in their agreements, that’s fine. That’s great, just don’t do it for all of your agreements.”
He added, “We want to make sure there is some open market where prices really are being negotiated, that’s what we can report on.”
Petracek noted several ways recyclers can use the monthly published prices to their advantage, including the prices serving as a good starting point for negotiations. This can help to make the overall process easier, he said. “If the buyer and the seller see what RISI has come out with, that’s the starting price for negotiations. They can get to a final price easier than if they didn’t have that benchmark.”
Recyclers also can get a different view of what’s going on in the market, whether other prices are up or down, Petracek said. “How does that compare to what I’m seeing in the markets?”
Another approach to using RISI prices, Petracek said, is to base them on a predetermined formula. This method involves taking the prices RISI publishes and adding here or subtracting there to set an agreed-upon formula. “That can be helpful and can take away any need to negotiate every month because of the agreement,” Petracek said, adding, “The one caveat is to not to do that all the time.”
He continued, “There are a lot of agreements out there based on the prices that we publish and when people do that they’re essentially leaving the price discovery to other people.”
During the Q&A period after Petracek’s presentation, one audience member questioned RISI’s wording and asked if there was a way to make the information “more relatable and understandable” to the average person?
In an interview with Recycling Today Media Group Associate Editor Megan Workman following the recovered paper pricing session, Petracek chuckled when asked this question again as he said it caused him to do some thinking and ultimately make some changes.
RISI has been working on a draft of a document that will explain the firm’s pricing standards and procedures. Petracek said after the “Recovered Paper Pricing” session he went back to his hotel room and brainstormed how to make the information more comprehensible. The result: RISI will now include one page in its methodology document that “really boils it down,” he said.
“I actually appreciated that question from the gentleman in the audience. I realized that the presentation I had given on RISI’s methodology was theoretical, high level and abstract. There are ways to better explain what we do,” Petracek said in the interview.
In addition to Petracek speaking, RISI’s Editor Greg Rudder addressed the audience with an update on recovered paper markets today. Rudder described a key market issue today is the decline in buying from China. “China’s buying from the U.S. fell 1.5 million tons since 2011,” Rudder said.
He added, “Imports from China continue to decline. Imports have gone down slightly overall, not just in the United States.”
In addition to the slowdown in buying from China, paper industry consolidations will continue and old corrugated containers (OCC) will increase, he said.
“What we have as of today is quite an increase of OCC,” Rudder said.
He added, “Mill buyers are bigger and more consolidated.”
As Petracek described, RISI publishes information about the global forest products industry. From price assessments and forecasts to mills and general news, the firm publishes information on finished paper goods and packaging as well as recovered paper.
The 2015 Paper & Plastics Recycling Conference was at the Marriott Downtown Magnificent Mile in Chicago. Next year’s conference will be Oct. 19-21 at the same venue. More information will be available at www.RecyclingTodayEvents.com as it is confirmed.
Source: Recycling Today