A link in a stressed supply chain

Recyclers in the 2020s are facing any number of challenges that can convince them they are involved in an industry walking a tightrope between success and failure.

Measured over the course of decades, however, numerous statistics demonstrate that manufacturers are using far more recycled materials compared with volumes from 30 or 40 years ago.

The popularity of recycled containerboard and paperboard is one of those success stories of steady growth when measured by volume.

This year, however, that same success has created a familiar challenge in secondary commodity sectors where demand is not the issue—chasing supply can be an ongoing source of aggravation.

A sustainable connection

Despite being able to host considerable tracts of land as managed forests, the United States has established itself as a place where recycled containerboard market share has risen in recent years.

According to the American Forest & Paper Association (AF&PA), Washington, about half of paper collected for recycling in the U.S. in 2023 went into containerboard production. Additionally, the group says about 80 percent of U.S. paper mills use some recycled paper to create products.

Demand for old corrugated containers (OCC) and other recovered fiber grades within the U.S. could be poised to grow based on considerable investments in recycled board production over the past several years.

Those investments might have been buoyed in part by China’s decision several years ago to curtail its purchases of OCC, mixed paper and other grades from the global market, seemingly freeing up material.

Another factor could lie in the notion that few household or commercial consumers show a preference for virgin material when they use a box, and a significant percentage prefer recycled materials.

A report based on a survey of U.S. household consumers, published by global consulting firm McKinsey & Co. earlier this year, found that a product’s recyclability is the most important characteristic for consumers when considering the sustainability of packaging, with a significant portion also concerned with the level of recycled content and reusability.

McKinsey says a wider global survey found that household consumers in some European countries (including France and Italy) placed an even higher importance on environmental impact when making packaging choices. (See the sidebar below, “Recycling sustains a favorable image.”)

European demand for OCC and recovered paper ties into the global OCC trade because Europe historically has been the other major OCC surplus region with the U.S.

According to figures gathered by the Brussels-based Confederation of European Paper Industries (CEPI), last year, recovered paper provided slightly more than 50 percent of the furnish for paper and board mills in Europe.

In containerboard production in the CEPI trading region (most European Union nations, plus the United Kingdom and Norway), that figure rises to an impressive 94.7 percent recycled-content rate.

The growing demand from mills in the U.S. and EU could be heartening for recovered fiber collectors and recyclers located near consuming mills, but the same circumstance for export-minded traders or plant operators near a port can be less ideal.

Scarcity as an unwelcome companion

The growing demand for OCC close to where it is generated in high volumes—and thus its removal from the global trading market—can be seen in CEPI’s 2024 statistical summary.

In 2010, when China’s paperboard mills were near the peak of their voracious appetite, some 9.88 million metric tons of recovered paper were exported from the CEPI trading region. Asia, including China, made up nearly 95 percent of CEPI’s export market that year.

Although export shipments tapered off in subsequent years, the CEPI region still shipped about 8.5 million metric tons of recovered paper in 2023 as European mills struggled with high energy costs spurred by the weaning off of Russian natural gas supplies.

Last year, however, the CEPI region shipped less than 7.9 million metric tons of recovered paper, a more than 18 percent decline.

Jun Park, who works from Singapore for Switzerland-based recycling and trading firm Vipa Group, says he does not see that trend reversing this year.

“We are seeing a global decline in recovered paper generation and exports as more recycled paper mills are being installed—particularly in the [United States].” – Jun Park, Vipa Group

“We are seeing a global decline in recovered paper generation and exports as more recycled paper mills are being installed—particularly in the [United States],” Park says.

He adds that North America has traditionally relied heavily on virgin fiber in its containerboard production, but with the recent shift toward recycled paper usage, the percentage of virgin content in containerboard is decreasing.

While trade groups such as AF&PA and CEPI tend to emphasize good news pertaining to the recycling of their members’ products, Park is not certain collection rates are rising in a way to meet increased demand.

“Combined with reduced collection volumes and increased local consumption, fewer offers are being made to overseas buyers,” he says of the difficulty to supply mills in places where a deficit in OCC volumes exists.

If scarcity is the order of the day, it has not been demonstrated in OCC pricing as reflected by Fastmarkets RISI’s Pulp & Paper Week. Throughout this year, Fastmarkets reports OCC consistently trading in the $60-per-ton range, down from loftier heights above $90 per ton in the summer of 2024.

In mid-July, Fastmarkets reported a $56-per-ton U.S. national average price for OCC, the lowest national average seen in two years.

If a supply shortage in some parts of the world is not raising the OCC price, a question that might tie into this disconnect is whether newly installed capacity globally is replacement capacity or whether the investments will lead to long-lasting growth in overall demand.

Finding its equilibrium

Commodity markets, including secondary commodity markets, very often are described as an ongoing struggle between demand and supply and the search for equilibrium.

When the Chinese government ordered mills to turn away inbound mixed paper shipments, demand for that grade suffered mightily in the near term.

During that pricing and demand low point, however, paperboard producers, including Georgia-Pacificand Green Bay Packaging, made moves to configure or construct mill capacity that could find a home for the seemingly orphaned recovered paper grade.

The rush to add OCC consumption capacity in Europe and North America could have been made because Chinese mills were forced to turn away the material, but the window of opportunity also gave board producers the chance to invest in capacity that could be efficient through all business cycles.

As the 2020s continue, traders and material recovery facility operators will be watching to see to what extent the new capacity leads to the idling older mill production lines.

Another factor possibly spurring capacity cutbacks has been recent merger and acquisition activity.

“Over the next five years, I expect [containerboard] supply to continue exceeding demand.” – Jun Park, Vipa Group

Over the last year, Dublin-based Smurfit Kappa finalized its acquisition of Atlanta-based WestRock, Memphis, Tennessee-based International Paper absorbed London-based DS Smith and, more recently, Lake Forest, Illinois-based Packaging Corp. of America announced its intention to purchase the containerboard business of Delaware, Ohio-based Greif. (See P. 26 for more on the transaction.)

Characteristically, when firms combine, closures are announced related to the completed mergers. Such closures have been joined by capacity cuts by Kingsey Falls, Quebec-based Cascadesand Atlanta-based Georgia-Pacific.

Despite those announcements, Park does not see his company’s access to exportable OCC improving anytime soon.

“New capacity additions are currently outpacing shutdowns,” Park says. “Over the next five years, I expect [containerboard] supply to continue exceeding demand, especially as many mills are still not running at full capacity, instead operating at approximately 70 to 80 percent in Asia. As well, some new facilities have yet to come online.”

In a report issued by CEPI examining the state of paper and board recycling in Europe, the trade group indicates that while traders in its region shipped 7.9 million metric tons of recovered paper last year, just 6 million metric tons of that material went to destinations outside the EU, Norway, Switzerland and the United Kingdom.

“The formerly high Chinese demand for European paper for recycling (PfR) has decreased to levels close to zero,” CEPI says.

The group identifies Indonesia, India, Vietnam, Malaysia and Thailand as key importers of European PfR before noting that, in 2024, net exports of PfR outside Europe decreased by 26.2 percent compared with 2023.

The author is senior editor at the Recycling Today Media Group and can be reached at btaylor@gie.net.