Recycled paper price nonsense: Analyst Insight

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Market analysis

Incorrect export declarations falsely dragging average prices down

In the course of our regular close examination of international trade data, it has become apparent that there are serious anomalies in official customs export declarations for recycled paper and paperboard.  These misreported declarations are having the effect of falsely dragging down the average price of exports, by as much as 20% in some cases.

IndustryEdge first reported on this matter in the September 2016 Edition 134 of Pulp & Paper Edge, after we were alerted to this systemic misreporting by a subscriber. These serious and regular anomalies are occurring in export trade declarations for Unbleached Kraft papers (Old Corrugated Cartons/OCC). Some of these anomalies have existed for a long time. Others are more recent.

The concoction is occurring across a wide range of export prices. While some of the declared prices fall within the range of believability, others as low as just AUD8.46/t beggar belief.

The prices reported are not only far too low, but both the prices and volumes are also far too precise to be real. For example, for the month of January 2019, there were 13 separate export declarations of exactly 40 tonnes of Unbleached Kraft, with every one of those declarations valued at exactly AUD2,200/t, yielding an exact price of AUDFob55/t each.  This is far too precise to be genuine, and surely cannot be a coincidence.

It is difficult then, to discern the true average price of Unbleached Kraft exports in the face of this ongoing pollution of the data.  If all the export declarations were to be believed, then the trade-weighted average price of Unbleached Kraft papers in January 2019 was AUDFob211.16/t. 

However it is our view that an average price of AUDFob211.16/t is far too low to be correct. We have identified a range of declarations that we believe to be questionable.  For the sake of this exercise, we have marked all exports priced at AUDFob110/t or lower as falling in to this ‘questionable’ category. These declarations account for 57 of the total 104 separate Unbleached Kraft declarations in January, i.e. more than half of all declarations.

These questionable declarations totalled 18,659 tonnes, making up nearly 29% of the total exported volume.  If these suspicious declarations were removed, the calculated average export price would then be AUDFob265.01/t, or 20.3% higher than previously calculated. It is IndustryEdge’s view this higher price provides a more accurate estimate of the true average price of exported Unbleached Kraft in January 2019.

Another way to examine the data is to layout all the Unbleached Kraft exports for January 2019 across the full range of declared prices, as displayed in the chart below.

Australian Exports of Unbleached Kraft: Volume vs Price: Jan ‘19 (tonnes & AUDFob/t)

Source: ABS

The chart displays the actual exported volumes at each different price point in January.  On top of this we have overlaid a normal distribution bell-curve for illustrative purposes only. As evident in the chart, an approximate bell-curve spread of ‘reasonable’ export prices occurs, with the majority of these exports falling within the range of AUDFob200/t and AUDFob340/t, and a few outliers spread a little further afield as would be expected. Looking at just the section under the curve alone, the typical export price could be anticipated to be somewhere in the vicinity of AUDFob270/t.  (Note our earlier calculation of AUDFob265.01/t).

The chart also draws into stark relief the difference in price between those exports falling inside the bell curve, and the large cluster of ‘questionable’ exports at the extremely cheap end of the scale. Clearly these ultra-cheap prices fall well outside the range of believability, with some apparently priced as low as just AUDFob8.46/t.

We don’t know who is making these dubious export declarations, but clearly they are nonsense. It beggars belief that a range of exports leaving Australia from ports as far and wide as Fremantle to Brisbane, and destined for a range of different countries including China, Taiwan, Korea, the Phillipines, Indonesia and Thailand, are all exported at exactly the same volume and exactly the same price.  Equally as nonsensical are the seven different export declarations, all heading from different ports and destined for different countries, yet all with volumes in exact multiple of 260 tonnes, and all priced at exactly AUDFob8.46/t.

While we do not know who the exporters involved are, these questionable declarations are for Unbleached Kraft shipped from all main Australian ports, so it must be a national exporter.

As has been stated many times before, Rubbish In = Rubbish Out.  Without accurate and genuine trade declarations, the pricing data alone cannot be relied on, and requires specific treatments to be applied to ‘weed-out’ the dubious declarations.  IndustryEdge will continue to investigate this matter, and apply treatments where necessary in order to produce more accurate price estimates for our subscribers. 

This item first appeared in the monthly Pulp & Paper Edge in March 2019

Source: IndustryEdge

IndustryEdge is Australia and New Zealand’s dedicated provider of market intelligence, trade data and analysis in the paper, paper products, pulp and recovered paper sectors.

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