Finding new markets

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U.S. recyclers explore alternate markets for recovered paper in the wake of China’s ban.

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December 6, 2018

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For the past year, the fate of postconsumer paper and plastics exports has been uncertain.

Following China’s strict restrictions on scrap imports, the country could move to an all-out ban on recovered paper imports by 2020. In response to the shifting market, material recovery facility (MRF) operators in the U.S. have set their sights on new shores to ship America’s curbside collected recyclables, as temporary as those markets may be.

For the past two decades, the U.S. and many other parts of the world relied on China to consume their postconsumer paper and plastics. Exporters would “dress up” bales to pass inspections and they lived by the motto, “If we bale it, they will take it,” said David Lee, managing director at California-based Pacific Genesis Resources, who moderated the session Alternate Markets to China – India, Indonesia, Vietnam, Mexico, Latin America at Recycling Today’s Paper & Plastics Recycling Conference in Chicago in October.

This year, China shook the global market, and rightfully so as many exporters will admit, he said. The paper and plastic scrap that China rejected moved to nontraditional Southeast Asian markets, such as Vietnam, Thailand and Indonesia. It has even moved beyond Southeast Asia into India and Mexico. However, it didn’t take long—six months to be exact—for some countries in Southeast Asia to adopt bans on imported recyclables. Once again, millions of tons of scrap paper and plastic have been left without a home.

A grim outlook

During the session, panelists painted a grim picture of what paper recycling will look like if the industry doesn’t change its ways and address the persistent quality issues that led China to introduce the scrap import ban.

Lee said he has lived through decades of changes in the recycling industry, from trading with Southeast Asian countries before China was a factor to when MRFs made the transition from dual- to single-stream processing and the quality of U.S. recovered materials went from “good to bad.”

His partner’s company, Genesis Resource Enterprise Inc., Springfield, New Jersey, has been in business for almost four decades.

“We started out in Singapore and we were servicing Southeast Asian countries before China was even a market, so after the ban of mixed paper and 24 different commodities, it was an easy transition to fall back on because our specialty was the market outside of China before,” Lee said of Pacific Genesis Resources.

“We have lost a long-standing trust. We must ship quality shipments for the longevity of the industry.” – David Lee, managing director, Pacific Genesis Resources

He explained that other countries will “mirror” China’s restrictions. Some already have. Taiwan and Thailand are closing their doors to paper and plastic scrap imports. It all comes down to a matter of trust, he said.

“It only took six months for Vietnam, Malaysia and some of these other countries to raise the white flag and basically say no more,” Lee said. “We shipped the mixed paper, the plastics, all the rejected banned material; their ecological concerns were immediately raised when all these shipments landed at their ports.

“We have lost a long-standing trust,” he added. “We must ship quality shipments for the longevity of the industry.”

Limited markets south of the border …

In Mexico, scrap paper consumption is minuscule compared with the million tons China consumed every month. Latin America can consume about one-third of the excess material on the market, according to Rogelio Silva, the director for Latin America at Continental Paper Grading, headquartered in Chicago.

“Are there alternate markets in Mexico all the way down to Chile [and] Argentina?” Silva asked. “The answer is very simple: No, not as we know it. The paper industry has to rethink itself. It has to redesign all the processes. It has to get creative.”

Silva said small paper mills in Mexico are producing recycled pulp and exporting the material to China.

He said Mexico is “a very traditional country with a very traditional way of recycling” that is thinking “outside the box” so it can continue exporting recovered paper.

Paper mills in Latin America are expected to grow more than 2 percent per year until 2021. New mills are “popping up,” Silva said, and will be able to process 700,000 additional tons of scrap paper, but the demand is for “clean grades.”

Silva added, “If you are one of many who has grades coming from single stream, then it’s going to be hard to allocate those tons in Mexico or anywhere in Latin America.”

From left: David Lee of Pacific Genesis Resources, Rogelio Silva of Continental Paper Grading, Steve Sutta of Green Planet 21 and Sung Soo Lee of Hansol Paper
Photo by Austin Friedline with Phierce Photography

… And further east

As a recycled paper and pulp buyer for Hansol Paper, headquartered in Seoul, South Korea, Sung Soo Lee said the Korean market also was devastated by China’s scrap paper import restrictions.

“Since 2010, Korea had been exporting a lot of volume to China,” he said. After China enacted its ban, which also affected Korean companies’ ability to export scrap paper, Hansol Paper’s “Korean plant couldn’t hold the volume of residential recycling and commercial [paper],” available, Sung said. “We don’t have the volume to expand [storage] capacity,” either, he added.

Steve Sutta, president of Green Planet 21, Oakland, California, warned that the markets in China for paper and plastics scrap “aren’t coming back” unless there’s drastic change within the industry.

“Half of waste paper and plastic that was being generated in the world in the second half of 2017 went to China,” Sutta said. “You have 15 million tons a year, 1 million tons per month looking for a home. It will find homes as the stream gets cleaner.”

Thinking outside the bale

Mills in North America, Latin America, Japan and China are expanding capacity to consume more scrap paper.

The current market situation isn’t an economic problem, said Sutta, who has been involved in recycling since 1985; it’s about quality.

“Our options on the export side are manifold, but you’re going to be less likely to move dirty material,” he said. “You’ve got to push back upstream to your suppliers, the cities and the municipalities running single stream. We’ve got to clean it up.”

Over the next few years, the industry will shift its focus from shipping recovered paper bales to China to growing operations in the U.S. that can consume this material. As China’s labor and energy costs rise, the southeastern U.S. is positioned to be a “low-cost processor,” Sutta said, but Americans “are going to have to clean up their paper and plastics.

“There’s new capacity coming up in the U.S. that’s designed to utilize mixed paper,” he added. “I know of projects that are going to use significant amounts of mixed paper in the U.S. over the next two years. The Southeast is a viable option. Nonetheless, they’re not going to take rejects of 25 percent, which was being shipped to China in 2017.”

While Southeast Asian markets are enforcing new restrictions and regulations, Sutta said, other countries are expanding their capacity to consume the excess volume of scrap paper available because of China’s import ban.

Over the next few years, he said, it’s also not safe to count China in, or out of the market.

“It’s a moving target right now,” he said. “Everyone’s guessing. We’re going to see uncertainty. We’re going to see a continuous shift in the market over the next two years.”

Looking at a large world map, Lee asked whether Africa or India could be the next to dominate the global market for recovered paper.

One thing is certain: “We don’t have an ending to this story,” Lee said. “Today, I don’t think any of us has the answer. We’re living through a situation that’s happening and changing every day.”

The author is the web editor for the Recycling Today Media Group and can be contacted at kmaile@gie.net.