The packaging and tissue sectors are enjoying stability, but ink-on-paper communication continues to decline.
Paper recyclers and recovered fiber brokers have a business model directly tied to the next month’s output at paper mills and the future demand for finished paper.
The paper recycling loop relies in part on ongoing demand for fiber at packaging and board mills, newsprint and uncoated freesheet mills and tissue mills.
Likewise, the scrap paper that recyclers collect and place onto a truck or cargo ship often has been manufactured within the past two or three months.
While recyclers may direct most of their energies toward obtaining supply and doing so affordably, a struggling paper mill sector causes distress from several different angles.
More Bad News
One of the greatest changes taking place in paper production (as well as in the recycling supply side) is tied to Americans—and people in many other parts of the world—not reading nearly as many newspapers as they used to. Daily newspapers increasingly are cutting back print edition home delivery to three days per week or to a similar partial schedule.
As well, newspaper pages have smaller dimensions, and the average daily paper has fewer pages. This combination of circumstances means newspapers and newsprint production never bounced back from the financial crisis.
The newsprint decline in the U.S. actually predates the financial crisis, with output having fallen from 16.4 million tons in 2000 to 12 million tons in 2007. By 2012, newsprint production in the U.S. fell to about 8.7 million tons, representing an incredible drop of nearly 47 percent in 13 years.
The output plunge has had a tremendous effect on recovered fiber supply sourced through municipal recycling programs, which have long focused on old newspapers (ONP) as a key commodity. Since 2007, material recovery facilities (MRFs), brokers and mills that had once relied on ONP as an important part of their business have struggled to adjust to the decline in the newspaper industry.
Statistics gathered by the American Forest & Paper Association (AF&PA, www.afandpa.org), Washington, D.C., point to recyclers having done an admirable job of increasing the ONP recycling rate since 2000 as one response.
In 1997 when ONP and OMG (old magazines) were more readily available, they were being recovered at a rate of 48 percent (for a total volume of 8.8 million tons). In 2008, as the decline of newspapers was well underway, a 69 percent recycling rate helped recyclers recover 9.8 million tons of the two grades, keeping many buyers satisfied.
By 2012, however, a 70 percent recycling rate only netted 6.1 million tons of ONP and OMG. As well, by this time buyers often were highly critical of the bales of ONP they were being shipped, claiming MRFs were adding considerable amounts of junk mail and other types of mixed paper. (See the sidebar “Over the Fence” below.)
Despite residential recycling programs that are as widespread and full service as ever, ONP and OMG recovery volumes have dropped steadily since 2006. Recyclers can work as hard as they want, but far fewer newspapers simply are available to collect, bale and ship.
A Package Worth Opening
The news is all-around better for containerboard and packaging grades in the United States. Unlike newsprint, production of packaging grades has rebounded since the financial crisis. While production of these grades has not bounced back to its 2006 level, it has rebounded enough to demonstrate that paperboard is retaining its market share in the packaging sector.
Over the Fence
Many of the paper mills constructed in China in the 21st century were built with systems that tolerated mixed-grade shipments by installing the best screening systems available. This didn’t improve their yields, but it allowed them to buy any material on the market and acquire the total tons they needed.
Since Operation Green Fence—a joint initiative by several central Chinese government agencies—began in February 2013, several reasons for the operation have been offered by government officials. The two main reasons include prohibiting unwanted, contaminated shipments and also matching up the contents of containers with what is actually inside them to collect the proper import duties.
Chinese mill buyers have at times had their lives made more difficult by Operation Green Fence, yet the sentiment also has been expressed that in the long run it will be good for them. Most mill operators would be happy to see increased yields from their bales to improve their bottom lines.
In North America and parts of Europe, the biggest investments in collecting and processing scrap paper have been made by solid waste companies that operate material recovery facilities (MRFs). They have delivered the needed tons but, in some cases, not always the desired quality.
Operation Green Fence is reportedly causing some of these MRF operators to invest in additional sorting machinery and more people on their sort lines, increasing their operating costs but allowing them to re-enter the global market.
The investments are likely necessary, as little indicates the U.S. will move away from commingled collection. Likewise, some comments from Chinese authorities are being interpreted as meaning Operation Green Fence has no anticipated end.
After 34.2 million tons of containerboard were produced in the U.S. in 2006, that amount fell considerably (13.7 percent) by 2009 as the U.S. economy struggled in the midst of a recession.
Much of this old corrugated container (OCC) material does not go to MRFs where it is commingled but instead is collected at industrial, commercial and retail sources, thus maintaining a more universally accepted quality level.
Operators, though, are seeing more OCC coming into and out of postresidential MRFs. Some observers call this the “Amazon effect” because of increased online buying. Telecommuters and others working from home offices also are cited as a factor in this phenomenon.
Whether traditional paper recyclers or MRF operators are doing the work, they both can take credit for a recycling success story. AF&PA statistics point to an OCC recycling trend that has been heading in a positive direction for 20 years, from 54 percent in 1993 to an impressive 91 percent rate in 2012.
As much as this is a good news story, there is an extenuating factor. The 91 percent recycling figure is derived by using U.S. containerboard production as its denominator. An unknown but likely significant percentage of the OCC collected, however, consists of boxes that were shipped from China, Mexico or other places supplying the U.S. with consumer goods, agricultural products and industrial components.
While OCC collection in the U.S. is thorough, almost certainly more than 9 percent of the OCC available is heading to a landfill.
China’s recycling rate suffers from the corollary to this equation. It ships out so much of its containerboard to the export market that its recycling rate is artificially low. Its collectors and processors are doing a much better job than is reflected in a recycling rate often estimated in the 45 percent range.
In Europe, newspaper circulation may not be fading as fast as in the U.S., but the sector is struggling. In 2012, newsprint production in the European Union (EU) declined by 4.5 percent, or by 400,000 metric tons, according to the Confederation of European Paper Industries (CEPI), Brussels.
Similarly, EU output of other graphic papers was down by 4.2 percent in 2012, according to CEPI, a decline of some 1.35 million metric tons in production.
As well, Europe’s containerboard sector is awaiting a more robust rebound from the financial crisis and, in many nations, the resulting austerity measures. In 2012, EU containerboard production of 24.7 million metric tons was about even with 2011 production.
As in North America, Europe’s ability to produce and ship ONP also is likely to suffer as electronic media wins out over print. Books, magazines and office paper also are being used less, hampering the production of other export grades. Steadier containerboard production likely means OCC availability will be stable in the EU.
For more than a decade, recyclers in the U.S. have been primarily affected by accelerating paper production in China while only occasionally considering scrap paper recovery rates in the nation. But China has been a net importer of recovered fiber for so long that changes taking place to its domestic supply will affect the entire world market.
A first source of concern, however, is occurring on China’s demand side. In September 2013, the nation’s Ministry of Industry and Information Technology declared China’s paper industry to be in an overcapacity situation.
The ministry reportedly sent a notice in early September to more than 60 paper manufacturing companies in the country informing them that they were expected to identify and shutter more than 6.3 million tons of capacity. The ministry has previously and similarly targeted other industrial sectors (such as steel and cement) with goals that include preventing a flood of inventory as well as eliminating what are deemed older and inefficient factories—especially those that contribute above-average levels of pollution.
Newsprint production in China peaked, at least temporarily, in 2009, according to the China Technical Association of the Paper Industry (CTAPI), based in Beijing. As in other parts of the world, ink-on-paper publishing is competing with smartphones, tablets and laptop computers to gain the attention of readers and news seekers.
In other sectors, the notion of production cuts is a radical change for an industry that has grown rapidly. Figures from CTAPI indicate that China’s paper and board production zoomed from 37.8 million tons in 2002 to 99.3 million tons in 2011, an increase of 163 percent in 10 years.
Such a growth rate cannot be sustained indefinitely. The question is whether China’s paper industry goes into a slow-growth mode or whether it might actually shift temporarily into reverse, as hinted at by the September notice.
The overall prospects for packaging grades and for tissue products in China, fortunately, cannot be considered gloomy.
It cannot be assumed that China or other Asian nations will follow household consumer trends as they developed in North America or Europe. However, in the U.S. in particular, as people’s incomes increased and as they spent more hours working away from home, they increasingly relied on processed, packaged foods they could store for long times versus fresh produce or meats purchased daily.
As reported by The Atlantic on www.theatlantic.com, a study released in September 2013 by Euromonitor International, London, forecasts that “in terms of volume the Chinese market for packaged processed food like ready-made meals, snacks and drinks like cookies, chips and soda will surpass America’s by 2015.” Euromonitor forecasts that in 2015 China will consume as much as 107 million tons of packaged food compared with 102 million tons in the U.S.
This trend may not have a great effect on corrugated boxes as both fresh and processed foods are shipped in boxes. In the U.S., however, it has resulted in more boxboard or paperboard packaging and cartons produced and available later to be collected for recycling.
Whether disposable tissue and towel products use will increase in China cannot be assumed, but most analysts who look at the existing trends and the comparative numbers in nations with higher average incomes can foresee considerable growth in the tissue sector as well.
As these products have a very low recycling rate (with paper recyclers unlikely to ever want to handle used hygiene products in their facilities), tissue mills can only serve as consumers of recovered fiber.
Even in the creation of new tissue products, in some people’s minds recycled fiber is not welcome. That stigma has largely been overcome in the U.S. and Europe, and in Asia tissue products labeled as being made with recycled paper are beginning to appear on shelves.
In addition to the perceived overcapacity issues on the paper mill side, China seems poised to furnish more of its own recovered fiber to domestic mills in the next several years, both in total volume and as a percentage of the overall supply.
Stated goals and funding mechanisms included in China’s 12th Five-Year Plan are intended to set up municipal recycling systems similar to those established throughout North America and Western Europe in the 1990s.
Much like in pre-1970s America, OCC has thus far been the focus of collectors and recyclers in China. Government programs catering to residents and retailers are likely to increase the collection of boxboard, OMG, mixed paper and other grades that have not traditionally been harvested in China.
Parts of the world still remain where the paper industry does not yet seem to be in an overcapacity situation—in some cases not even the newsprint or printing and writing sectors.
India has shown steady growth in papermaking in the past 15 years. The nation has more than 500 paper mills, though many of them are small, and some do not use any recovered fiber. The country’s overall ability to import and use scrap paper, however, has grown steadily.
The Middle East North Africa (MENA) region is another place with a growing paper and board industry. (Those seeking more information from this geographic region may wish to investigate the 2014 Paper and Plastics Recycling Conference Middle East, March 4-5, 2014. Information is available at www.paperrecyclingconference.com.)
Africa south of the Sahara remains one of the more underdeveloped regions, though many nations there are enjoying GDP growth. The fact that paper machines are being installed in the midst of this GDP growth ideally is a sign that higher standards of living are setting in for more than just ruling elites. A growing paper industry in Africa rests on the creation of a middle class there.
Despite the declines in ink-on-paper communication, recyclers still have reasons to be optimistic about the paper industry. In the tissue sector, a 4.9 percent global compound annual growth rate (CAGR) from 2012 to 2016 has been predicted by London-based Technavio. A forecast from Ireland-based Research and Markets, meanwhile, predicts 5.9 percent CAGR in global paper industry revenue between 2012 and 2017.
The fear that communication will continue to shift away from paper remains legitimate. On the hope side of the ledger, however, other paper sectors are more likely to stabilize and grow, especially in parts of the world with emerging economies.
The author is editor of Recycling Today and can be contacted at firstname.lastname@example.org.