With the move toward the paperless office, the decline in newspaper readership and the transition of manufacturing to China, one would think that the domestic paper industry was reeling and on its last legs. These factors, among others, have created a difficult environment for the paper industry. Additional bad news has come in the form of mill closures, bankruptcy filings and the idling of machines at various mills.
But, Mark Twain’s famous line, “The reports of my death have been greatly exaggerated,” also could apply to the North American paper industry.
While problems still plague the paper industry, as recently witnessed by the announcement that Blue Heron Paper, Oregon City, Ore., has entered into Chapter 7 liquidation, citing its inability to cost-effectively purchase raw material.
However, the skeptics who were writing off the domestic paper industry a few years ago are being replaced by people who, while perhaps not bullish, are modestly optimistic about the outlooks of the forest products industry during the next several years.
Amid this cautiously optimistic environment, it’s important to acknowledge that some market segments are better positioned than others. The tissue and paperboard markets, according to one paper industry consultant, have positive indicators, while the newsprint and printing and writing papers sectors likely will experience further declining interest in their products.
SIGNS OF RECOVERY
For several industry observers, the recent acquisition of Smurfit-Stone Container Corp., with headquarters in Chicago and Creve Coeur, Mo., by Norcross, Ga.-based RockTenn crystallized the recovery of the paper industry. The deal was generally viewed as a strategic and timely move, especially in light of the investment community’s view that paper markets hold promise going forward.
This positive outlook is welcome after the market collapse seen in late 2008 and early 2009. Markets for most paper products (tissue, containerboard and boxboard) have since improved, with manufacturers having implemented multiple price increases for most grades of paper and paperboard products. The current environment for paper producers is more stable than it was several years ago.
The U.S. Environmental Protection Agency’s (EPA’s) revised Boiler Maximum Achievable Control Technology (Boiler MACT) rule, which includes emission limits for industrial, commercial and institutional boilers using fossil fuels and biomass, is causing concern among paper industry professionals. The EPA signed the new rule into law Feb. 21, 2011.
In a statement issued Feb. 23, the American Forest & Paper Association (AF&PA), Washington, D.C., and its CEO Donna Harman contests the release of the Boiler MACT rule, stating: “Although most boilers are already well controlled for key pollutants, such as particulates, EPA is in the process of reissuing the Boiler MACT rule to require more than 99 percent of boilers to do much more.
“With additional time, we believe EPA could develop a proposal that would be even less costly and less harmful to job creation and economic growth. Unfortunately, the important work EPA was doing to improve the rules was cut short when the U.S. District Court rejected EPA’s request for time to repropose the rules and allow for additional public comment.”
In March, Harman presented written testimony to the House Oversight Subcommittee on Regulatory Affairs regarding the changes to the Boiler MACT.
Illustrating this point, the American Forest & Paper Association (AF&PA), Washington, D.C., reports that containerboard production continues to improve. The AF&PA notes that for February, the most recent month for which figures are available, containerboard production increased for the 16th month in a row. The AF&PA also notes that production of boxboard, unbleached kraft and solid bleached folding paperboard also increased during February of this year compared with February 2010.
However, as robust as these figures were for February 2011, they are down from the previous January 2011, perhaps indicating that demand is leveling out.
Even now, a number of paperboard producers, including Caraustar Industries, RockTenn and Sonoco, have announced price increases to go into effect in April 2011, as higher raw material prices, especially for old corrugated containers (OCC), put pressure on producers.
One analyst says that while prices for some of the paper grades might be hitting a price ceiling in early spring, the paper industry is perhaps only halfway through its upward cycle.
Bill Moore, a paper recycling consultant with Moore & Associates, Atlanta, remains bullish about recovered paper and finished paper markets going forward, though he adds that while prices for many grades of recovered fiber have reached multi-year highs, they appear to be flattening. However, signs do not point to crashing markets, which may indicate solid footing for the paper industry going forward.
Prices for a number of grades that typically supply printing and writing mills have climbed, says Moore. This could continue into the future, as Nine Dragons prepares to open a new printing and writing mill in China that will require recovered fiber as a raw material.
Steve Silver, CEO of FutureMark Paper, an Alsip, Ill.-based company that makes printing and writing paper with high recycled content, say he sees a steady improvement in the paper industry that is mirroring the overall improvement in the U.S. economy.
“The bad economy drove out a lot of mills,” he adds. “The mills now are in much better shape.”
FutureMark manufactures high-quality coated papers for magazines, catalogs, commercial printing and container labeling, with recycled content typically greater than 90 percent, including more than 30 percent post-consumer fiber.
“Capacity is well-matched with demand,” Silver says of the paper industry. He adds, however, that the domestic market could be considered as being under capacity.
The printing and writing paper segment has seen its fourth price increase in the last two years, though prices are still below the levels they were at before the economic slump in early 2009.
Silver adds that currently more finished paper is being shipped than produced, which indicates that mills are working through their inventories.
Not everyone has such a bullish outlook for the printing and writing paper sector, however. One analyst says structural challenges exist for the printing and writing paper sector as well as for the newsprint sector. The key problem, the analyst says, is the drop in demand for the finished product in North America.
The tissue and paperboard sectors, on the other hand, should show strength going forward, according to the analyst.
Joshua Zaret, a forest products industry analyst with Longbow Research, Independence, Ohio, also is bullish about the paper industry. He points to three key drivers that are dictating the improvement in the domestic paper industry: energy prices, the overall economy and capacity management at the paper mill side.
While Zaret says he sees margins tightening for paper mills, the industry should continue to hold up fairly well during the next several quarters. “We will have some hiccups, but the GDP (gross domestic product) will grow.” He adds, “Most people say that the economic growth is not strong, but that’s OK. As long as the economy picks up, the paper industry should be OK. If the economy grows at 2 percent, we are in good shape.”
QUALITY CHALLENGES CONTINUE
The improvement in paper markets throughout the past couple of years has heightened concerns on the part of paper mills that recovered fiber quality continues to erode. As single-stream collection programs grow, many recovered paper consumers are decrying the sharp drop in the generation of certain grades as well as in quality of paper stock grades.
While single-stream collection programs have been a boon to many municipalities as a way to boost recovery levels, for many mills this material has inherent quality problems.
Marty Rusk, vice president of fiber supply for Orange County Container Group LLC (OCCG), a Texas-based integrated paperboard and paper-based packaging manufacturer, says quality continues to be a sore point for mills. To address the situation, Rusk says the company is working more closely with its internal network of paper stock plants to guarantee that there is an adequate supply of quality material available for OCCG. This measure has allowed the company to guarantee a higher quality recovered fiber as its raw material furnish, Rusk says.
Other mills that do not have their own recycling divisions are looking at the possibility of switching to using wood chips or pulp as a raw material.
One paper industry consultant says a number of newsprint mills in North America are investigating incorporating more in their manufacturing process because they are unable to obtain enough recovered fiber at a “fair price.”
She adds that it is becoming more difficult to control the “urban forest” that many mills have to depend on for raw material.
“There is a problem with quality, especially old newspapers (ONP),” the consultant says. “Single stream is lowering the quality, and the contamination factor is increasing for paper mills. What you have now is higher (paper stock) prices and lower quality material.”
FutureMark’s Silver also sees challenges going forward for paper mills that rely heavily on recovered fiber as their primary feedstock. “The post-consumer waste paper is bad and getting worse,” he says. He estimates that of the material his mill typically handles, 15 percent can’t be put in the pulper.
Other mills say contaminants and out-throws range from 14 to 20 percent of the recovered paper they are shipped.
As a result, the fiber costs more per usable ton, plus the mill must pay to dispose of the material it cannot use.
Several industry observers say quality will be under greater pressure as many recyclers have to dig more deeply to obtain recovered fiber for their mills.
If the forecasts prove accurate, however, domestic paper and paper recycling markets should remain fairly healthy through the first half of this year.
The offshore market also will continue to have an effect on the paper and paper stock industries in North America. Chinese mills are showing no signs of slowing their purchases of recovered fiber from throughout the world. And, with more mills coming online in that country, there will continue to be a scramble to meet supply requirements both domestically and offshore.
The author is senior and Internet editor for Recycling Today and can be contacted at firstname.lastname@example.org.