[PAPER RECYCLING CONFERENCE WRAP UP] Issues & Answers

As has become a tradition each June, paper recyclers and mill consumers gathered at the Paper Recycling Conference & Trade Show to discuss the latest trends and issues affecting their industry.

This year’s conference, hosted by the Recycling Today Media Group and co-sponsored by the Paper Stock Industries (PSI) Chapter of ISRI, was held at the Hyatt Regency in downtown Chicago June 23-25.

A series of panel discussions followed by lively question and answer periods marked this year’s show, which also included an exhibit hall of industry vendors and suppliers and additional workshops addressing operational issues for paper recyclers.

KEEPING THE LOOP CLOSED. In the show’s keynote session, attendees heard from an industry executive asking recyclers not to forget about the consuming mill’s needs.

The "chasing arrows" recycling symbol should remind recyclers of an important consideration, said Fred von Zuben, chairman and CEO of the Newark Group, Cranford, N.J. The symbol represents a closed loop, which cannot be closed without prosperous consuming mills.

"The dynamics of paper recycling are changing," von Zuben told attendees of the Paper Recycling Conference & Trade Show. "Our reaction to those changes will have positive results . . . provided we all remember recycling is a closed loop process."

On the paper mill side of the loop, von Zuben remarked that, "Mills cannot be asked to adjust to bad quality" shipments from recyclers. In particular, von Zuben expressed concerns about single-stream curbside collection and processing.

"Is this, in fact, the silver bullet?" von Zuben asked regarding single-stream’s ability to save curbside recycling programs and increase tonnage collected. "I would argue [that] single-stream may prove to be the beginning of the end of the recycling success story," he answered.

Echoing sentiments expressed by Dr. James Burke of SP Newsprint, Atlanta, at last year’s Paper Recycling Conference, von Zuben said his paperboard making company "may not be there in the future" as a market for recycled paper if quality issues are not addressed.

"Contaminants can turn perfectly good materials back into garbage," stated von Zuben, noting that this offsets the potential good of increasing overall tonnage.

When mill companies are asked to purify an incoming contaminated product, it adds cost they are not equipped to bear. Mills "cannot afford to add another cost to our production," von Zuben said.

Both von Zuben and session moderator Bill Moore of paper industry consulting firm Moore & Associates, Atlanta, pointed to signs that the North American paper industry is neither swimming in profits nor growing to include additional mill facilities.

Moore noted that the U.S. paper industry "will lose 6.5 million tons of capacity in the 2000 to 2003 period," and that some 56 paper mills have shut down in the past three years.

Von Zuben summarized, "Paper supports most recycling programs. But without a supply of clean paper, there will be no paper recycling industry."

FORGING THE SINGLE STREAM. Despite some concerns about the process, single-stream collection and processing techniques are not a short-term experiment, said Brian Fielkow, a vice president with Recycle America Alliance LLC.

Addressing attendees of the same keynote session, Fielkow pointed to six trends that affects the way his company—perhaps America’s largest handler of scrap paper—deals in the recovered fiber markets. Those trends include:

• A consolidated paper mill demand base in the U.S.

• Weak supply currently because of a soft economy, more efficient printing production processes and subdued public interest in recycling

• Stronger export demand for scrap paper

• A fragmented supplier base of generators and packers that is like to consolidate similar to the way mill production has

• Municipalities and hauling companies are both scrutinizing the economics of municipal recycling

• Several factors are influencing the mill paperstock supplier relationship.

What hasn’t changed, said Fielkow, are mill demands for consistent quality and the long-term security of their fiber supplies. The single-stream collection and processing technique championed by Recycle America Alliance (a subsidiary of Waste Management Inc., Houston) fulfills the steady supply desire, though some criticize the quality.

Fielkow told attendees that in order for curbside materials to be collected and marketed at all, the single-stream system may be necessary. "The question has to be asked: Is curbside recycling economically viable? Only if it makes economic sense versus landfilling," answered Fielkow.

He added that Recycle America Alliance was continuing to explore improvements to the single-stream process, including using optical sorting to separate glass and plastic and increasing public education to keep contaminants out of the stream.

Fielkow then invited attendees to sign up for a tour of Recycle America’s nearby Grayslake, Ill., single-stream material recovery facility to see the quality of finished products first-hand. "Single-stream will make curbside [programs] more economically sustainable," he stated.

NO SECRETS TO MILL BUYING. Panelists at the "Secrets of Successful Mill Buying" session of the conference agreed that mill buying is largely transparent.

However, they did stress certain principles that may result in more successful mill buying, foremost among these is communication.

Session moderator Ed Tucciarone, vice president of eastern sales for Smurfit-Stone Container Corp., Clayton, Mo., began the session by outlining the importance of inventory management, consumption volatility, export markets and quality. Tucciarone said that mixed paper is playing a larger role in furnishing mills presently. The role of export markets is also expanding, adding that host-city Chicago is also experiencing the shift to export markets for various grades. However, Asian OCC is causing problems for U.S. mills, as are single-stream collections, moisture and UV printing.

John Lucini, vice president of fiber supply for the Pacific Region of SP Newsprint & Recycling, echoed the problem of obtaining a quality supply of recycled fiber. He suggested steps mills should take to ensure a stable supply of quality fiber, including consistent buying and developing a secure supply base that focuses on relationships.

"If you are easy to do business with, you’ll be a preferred customer for your supplier," he said.

In terms of inventory strategy, Lucini suggests consistent purchasing, protecting from seasonal and market-related fluctuations in supply and allowing for efficient warehousing operations.

In light of the declining quality of incoming recovered paper, Lucini suggested delving deeper into the waste stream to obtain the quantity of fiber required. He also stressed understanding a supplier’s capabilities and quality issues and educating them on the impact poor quality material has on the finished product.

Lucini addressed the use of financial derivatives. This tool helps to stabilize raw material costs, but does not assure raw material supply. However, he stressed that financial derivatives are only as secure as the financial institution providing the service.

Jeff Kibler, executive vice president of Visy Recycling, Atlanta, also stressed quality issues. He assured attendees that having a consistent quality specification is important to suppliers.

Mills can also set themselves apart from their competitors through customer service and transportation, as movement and the price of fiber are key, Kibler says.

Jan Marrs, vice president of supply for Weyerhaeuser, also stressed providing suppliers with a good experience. She stressed Weyerhaeuser’s commitment to safety, fair-market pricing, consistent takeaway and payment terms and a high level of ethics and integrity.

E-tools facilitate dealing with Weyerhaeuser, enabling domestic customers and suppliers to check on the status of their orders.

Marrs added that Weyerhaeuser mills are increasing their inventories, selling to third parties and taking advantage of their regional locations in response to current market conditions.

NAVIGATING EXPORT MARKETS. Speakers at the "Exporting with Success" session addressed the evolution of export markets for recovered paper.

Nini Krever of Traders International Corp., Palm Beach Gardens, Fla., moderated the session, which included panelists Steve Sutta of the Sutta Company, Oakland, Calif., and Esko Uutela of EU Consulting, Stamberg, Germany.

Krever began the session by noting that 19 U.S. paper mills shut down during 2002, a sharp increase from the average four per year in the 1990s. These closures have helped contribute to a 3.96 percent increase in U.S. exports in the last year, Krever said.

Sutta noted that eight years ago, the Asian "tigers," comprised primarily of Japan, Taiwan and Korea, drove demand. However, demand from China has eclipsed demand from the other Asian countries, particularly for bulk grades, he said.

He added that the mixed paper grade is the most popular in China because the country’s cheap labor enables sorting of the grade at a relatively low cost. In contrast, overhead costs in the U.S. are rising, he said.

In the long term, Sutta sees increasing pressure to lower furnish costs in response to worldwide manufacturing overcapacity. The secondary paper market is also threatened by the quality standards of paper recovered from single-stream methods, he said. "Single stream is a problem. I don’t care how you do it."

Sutta concluded that these factors will lead to greater consolidation among wastepaper packers; pressure to reduce collection and processing costs; and greater pricing volatility resulting from the "spot buying techniques" employed by Chinese markets.

Uutela said that global consumption grew by 35 percent in the decade of the 1990s, though he expects global growth to slow down by approximately 3 percent before 2005. He expects to see strong growth in Eastern European markets and very strong growth in China and the Near and Middle East.

China will account for 40 percent to 50 percent of the news demand for recovered fiber, he added, while Europe will also represent a major region for new investments. However, Uutela said the North American market will be characterized by recovered fiber capacity closures rather than new growth.

Uutela forecasts that OCC and mixed grades will account for 60 percent of the growing recovered paper requirements.

In terms of growing Chinese recovered fiber demand, Uutela said 2.3 million tons —the highest import tonnage recorded— was in the first quarter of 2003. He added that North America accounts for two-thirds of Chinese imports.

Concerning European markets, Uutela said that Spain is the continent’s primary net importer of recovered fiber. Germany, the U.K. and the Benelux are Europe’s primary net exports; however, German net exports fell by 1 million tons between 2000 and 2002.