Sonoco provides update on $115M Project Horizon investment

Sonoco, a diversified global packaging company based in Hartsville, South Carolina, has released a progress report on Project Horizon, its investment to transform its corrugated medium machine in Hartsville to an uncoated recycled paperboard (URB) operation with 180,000 tons of annual production capacity.

“The conversion of our corrugated medium machine (No. 10 machine) to URB is expected to be completed by the end of the second quarter of 2022, and there are a number of significant construction projects underway that will modernize the infrastructure of the entire Hartsville Mill Complex and allow for more efficient and safe handling of raw materials and finished goods,” says Sonoco’s Tim Davis, division vice president and general manager, Paper & Adhesives, U.S./Canada.

The company says it has invested $115 million in Project Horizon, an increase from $83 million it initially invested when it first announced the project in April 2020.

When the company announced the project, Howard Coker, president and CEO of Sonoco, said the project is named “Project Horizon” because it “will be creating a much brighter future for our domestic URB mill system while resolving the volatility we have experienced as an independent producer of corrugated medium from our No. 10 machine.”

For Project Horizon, the company is constructing a new stock prep system to provide about 650 tons per day of recycled fiber to the rebuilt No. 10 paper machine and other Hartsville cylinder machines. According to a news release from Sonoco, the new stock prep system will allow for increased consumption of lower cost mixed paper along with old corrugated containers, or OCC. Davis says this machine should be operational in October.

To reduce paper finishing and warehouse complexity cost, Sonoco also is building a new offline winding operation and 102,000-square-foot finished goods warehouse on the Hartsville complex. The company says the new offline winding department will incorporate state-of-the-art equipment and should create 16 new positions.

Sonoco also plans to exit the corrugated medium market by early 2022 and expects URB capacity through its U.S. and Canada mill network to remain neutral at about 1.2 million tons per year. Based on the progress of Project Horizon, the company expects to permanently shut down its Hartsville No. 1 and No. 9 URB cylinder machines, which will reduce annual capacity by about 70,000 tons. The company adds that the timing on those closures will depend on market conditions as well as the startup of the converted Hartsville No. 10 machine.

In 2020, the company says it also permanently shut down a 30,000-ton-per-year machine in Hartsville and a 95,000-ton-per-year paper mill in Trent Valley, Ontario.

Sonoco reports that its new Hartsville machine is being designed with the goal of being a low-cost URB machine with the capability to produce a wide range of high-value paper grades to service the company’s industrial and consumer converted products businesses and external trade customers. Davis adds that Project Horizon is expected to drive $30 million in annual cost savings by 2023.

Sonoco also has achieved increased sales for the second quarter of its fiscal year, which ended July 4, compared with the same quarter in 2020. The company says its quarterly net sales were $1.38 billion compared with $1.25 billion in the second quarter of 2020.

Virtually everyone I’ve talked to in recent months, whether a material recovery facility operator, a scrap metal processor or a plastics reclaimer, has mentioned having a record-high number of open positions within their companies and difficulty finding people to fill those positions. The situation is affecting the number of shifts they operate in some instances or whether they operate certain facilities at all in others. Processing volumes have been affected as a result.

Some people in the industry think increased unemployment benefits are to blame, while others say the benefits are one factor in a complex web of issues brought to light by the pandemic.

According to an article in Inc. by Sharon Poczter, chair of the Strategy and Entrepreneurship Department at Yeshiva University, “People have left the workforce for a variety of reasons, including the fact that child care is more expensive than wages (and schools have opened before businesses), people were and remain afraid of going back to work in some industries because of health safety, and, yes, of course, if a greater financial benefit from staying unemployed versus working exists, then workers may choose to stay home. This financial benefit may also allow workers to be more selective with the jobs they choose and take time in doing so. This would be particularly true for those unemployed with more time left in their careers and less financial responsibility.”

The situation is hitting small businesses particularly hard because it also is putting upward pressure on wages, she adds.

”Virtually everyone I’ve talked to in recent months has mentioned having a record-high number of open positions within their companies and difficulty finding people to fill those positions.”

In the article “Employees wanted,” Bill Keegan of Dem-Con Cos. shares that his company has raised wages for its workers and has improved its benefits package in an effort to attract and retain employees. Dem-Con is spending about three times more on recruitment efforts, too.

Company culture also might need to be addressed. MetLife, in its “19th Annual U.S. Employee Benefit Trends Study 2021,” says “employers should rethink their responsibilities to their employees—and create a holistic work culture that addresses changing priorities in safety, mental health and more.”

Which brings us to another topic covered in this issue: mental health and its connection to workplace safety.

The pandemic has affected the physical health of some employees, but it arguably has affected the mental health of most employees as they struggle with increased workloads, a blurring of boundaries between their homes and workplaces in some instances and reduced child care options.

Sarah Bolton and Jason Todaro of Blue Ridge Services offer advice to employers on how to normalize talking about stress and mental health in the workplace.

Recycling Today would like to hear more about how you’re handling these concerns in your workplace. Let us know by emailing me at dtoto@gie.net.

The booming economies of Asia host nations with scrap deficits and a genuine hunger for nonferrous scrap. In the past several years, these market forces have been countermanded by regulatory dictates, however, that often impinge on the flow of aluminum and copper scrap from surplus nations to those with a deficit.

Actions by the People’s Republic of China have been the most sweeping and have had the greatest impact on global markets, considering the size of that nation’s economy and its previous hunger for imported scrap.

In the past few years, entrepreneurs based in China and neighboring nations often have set up shop outside China’s borders to keep the scrap streaming in so it can be converted into the ingots, billets and cathodes needed to power Asia’s sizable demand for metal.

Malaysia, in particular, has seen its scrap processing and secondary metals production sectors blossom in the past few years. However, environmental and trade concerns (perhaps boosted by protectionist lobbying from regional primary metals producers) have spread to Malaysia, creating the prospect of new barriers for United States-based processors and traders.

A southward shift

In 2013, the government of China began a series of actions that have seen it go from the world’s largest of importer of scrap materials (nonferrous, paper and board and plastic) to one with some of the most severe restrictions.

It seems difficult to make an economic case for the pivot. In the metals realm, urbanization, infrastructure spending and other factors that lead to the intense use of metals have continued in China in the subsequent eight years, even as that country’s government squeezed out nonferrous scrap imports.

Reasons for the pivot are not always clear in the single-party Chinese state, though environmental reasons and an unwillingness to accept “foreign garbage” were offered most frequently.

While primary metals producers in China often are state-affiliated companies, entrepreneurs have dominated in the scrap processing and secondary metals sector. This entrepreneurial class, being well-aware that shipping containers full of high-value copper and aluminum scrap are not filled with “garbage,” has tried to find different ways to stay in the secondary metals business.

Many such companies relocated, with Malaysia often being their destination. Malaysia’s emerging status as a scrap processing and secondary metals production center can be seen in U.S. Census Bureau statistics that also are published by the U.S. Geological Survey (USGS).

In 2019, about 128,000 metric tons of unsegregated alloyed red-metal scrap headed to Malaysia from the U.S., while just 7,770 metric tons headed to China. The next year, the discrepancy was not quite as large but still sizable, with 23,300 metric tons of scrap in this classification heading to China versus the 101,000 metric tons that were shipped to Malaysia.

Higher grades of red metal scrap (No. 1 and No. 2 copper) had better success getting into China in 2019 and 2020, when the country’s import quota system was in place, though the smaller nation of Malaysia pulled even with China as far as importing scrap designated as “other” in the unalloyed copper category.

The aluminum scrap situation shows an even larger skew toward Malaysia. In 2020, under the quota system, Malaysia brought in 418,000 metric tons of American aluminum scrap, while the 154,000 metric tons sent to China represented less than 37 percent of Malaysia’s total.

This year, China has shifted from the quota system to one where inbound aluminum scrap must meet a purity level that far exceeds what is required in virtually every other nation. In the first four months of 2021, according to the USGS, just 7,980 metric tons of aluminum scrap meeting these requirements were sent from the U.S. to China.

That represents less than 5.5 percent of the whopping 146,000 metric tons of aluminum scrap that traveled from the U.S. to Malaysia in the first four months of 2021.

Considering the scope of automotive and other manufacturing activity in Malaysia compared with China, it seems clear the ingots produced from the Malaysia-bound scrap were then most often shipped to China. (Trade statistics maintained by the Chinese government have at times confirmed this.)

This booming era of nonferrous scrap trade between Malaysia and scrap surplus nations such as the U.S. received an unwelcome jolt in March of this year, however, when a government-affiliated agency in Malaysia said new quality standards and inspection techniques could be on the way.

Ill-considered Imitation?

In the first week of March, the Brussels-based Bureau of International Recycling (BIR) posted links to documents and a presentation made by Malaysia-based SIRIM QAS International. That customs inspection agency claims to be owned by Malaysia’s Ministry of Finance.

The presentation and proposed SIRIM guidelines list scrap grades that would be prohibited and inspection procedures for remaining grades that, for industry participants, brought to mind all the measures that stifled the scrap trade between China and the rest of the world.

Introducing strict, Chinese-style regulations to Malaysia would be a burden for global traders and, in all likelihood, disastrous for members of the Malaysia Non- Ferrous Metals Association.

That Selangor, Malaysia-based association and its member companies have been striving to build a relationship with Malaysia’s government (including a proposed resource-focused industrial park) to secure the secondary metals sector’s role in the national economy.

In an early June online BIR session presentation, Eric Tan, president of the Malaysia Non-Ferrous Metals Association, said, “Many existing investments will go down the drain if the [import] guidelines enter into force.” He then added that Malaysia’s potentially bright nonferrous future will run into a wall.

“Our association is trying to convince the authorities” not to enact those guidelines, Tan said. He added that the opposition to scrap seems to stem from reports linking scrap to plastic in the ocean.

As currently configured, Tan said the guidelines’ requirement that scrap metal brought in must consist of 94.75 percent or more of one type of metal would completely prohibit trade in stainless steel, brass and cast iron alloys.

The guidelines were under review as of early July, though the Washington-based Institute of Scrap Recycling Industries (ISRI) says its research indicates the Malaysian government likely will maintain a tolerance for just 0.25 percent nonmetallic content in scrap metal shipments. (This, seemingly, will end the shipment of baled wire and cable or insulated cable and wire, or ICW, shipments to Malaysia.)

A regimented inspection routine (that would directly benefit SIRIM) represents another barrier to maintaining the current levels of trade if the new guidelines are adopted in Malaysia.

A trader who ships scrap from the U.S. to Malaysia says one customer asked to receive a shipment that involved taking several photographs during the container loading process, based on the proposed Malaysian guidelines.

The trader says the operations department of the scrap processing company filling the order found the additional photos slowed the loading process to the point that making it standard procedure clearly would be cost-inefficient.

Recyclers and traders in the U.S. (as well as in Europe and other scrap-surplus nations) learned to navigate the Chinese inspection process when buyers in that nation represented a high double-digit percentage of the global scrap import business. It is unclear to what extent processors or brokers will engage with a similar system if it is set up in Malaysia. In March, when the guidelines were posted, one trader told Recycling Today there will be “no need” to ship the same high grades to Malaysia that can be delivered directly to some Chinese ports.

Another trader worried that “a number of metal recyclers who moved from South China to Malaysia may be forced to move yet again.”

As of early July, that second trader, who markets European scrap to Malaysia and to buyers in other Asian nations, says rumors are pointing to Sept. 1 as the date when the proposed guidelines will become rules enforced at Malaysian ports. (He says he has not been asked to make any shipments in strict compliance with the guidelines.)

Should Malaysia follow through on mimicking China’s treatment of cargoes worth tens of thousands of dollars as “garbage,” either the geography of global nonferrous scrap trading will shift yet again, or its scale could shrink.

An executive of one of the world’s largest aluminum producers made a suggestion often heard in the scrap industry: The sheer volume of transboundary metal trading could shrink significantly.

In a broadcast interview, Kumar Mangalam Birla, who oversees the $46 billion India-based Aditya Birla Group (which includes Atlanta-based aluminum producer Novelis), said, going forward, his conglomerate is unlikely to invest in “a company or a business where you source in one corner of the world and sell in another corner of the world.”

In the interview, Birla added, “That’s a reset that has happened on account of growing protectionism.”

In the scrap and secondary metals market, if Malaysia’s government soon decides to mimic the barriers that were put in place in Beijing in the past, it likely represents one more push of the same reset button.

The author is senior editor with the Recycling Today Media Group who can be contacted at btaylor@gie.net.

Demand is healthy for many recyclables this summer, but the No. 1 complaint from many recyclers is related to transporting those materials. Transportation has been a headache for many in the recycling industry since late last year.

With ocean shipping, containers and space on vessels have been very hard to come by this year.

“Space is tight. Even though you have a booking, at the last minute it can get rolled,” Steve Frank, president and CEO of Pioneer Recycling Services told Recycling Today in late December 2020. “It is very challenging in the Northwest. I’m hearing about this all over in our area.”

Fast-forward to May of this year, and many recyclers still faced issues securing containers and space on ships to transport materials. One recovered paper broker based on the West Coast told Recycling Today that month that ocean shipping backlogs had gotten worse as the year progressed.

“There’s very limited space on vessels, and bookings are getting more difficult to come by,” he said. “When you do have bookings, they are seemingly constantly changing.”

These freight-related complaints aren’t unique to the recycling industry; exporters globally are facing the same challenges and have been for a while.

Analysts and freight forwarders say a simple solution to these challenges is unlikely, mentioning a perfect storm of events is resulting in the challenges with ocean shipping.

Anupa Pradhan, vice president of import contracts at Plano, Texas-based Sealink International Inc., attributes some of today’s shipping challenges to the initial onset of the COVID-19 pandemic last year. Since the pandemic started, she says, freight rates jumped up regularly.

“The costs have been shooting through the roof every month,” Pradhan says. “Every month, I think, ‘This can’t go higher;’ but, the next month it goes higher. This is unprecedented. This is a situation brought about by the pandemic by the way things have been dealt with.”

Sealink International is a freight forwarder focused on handling primarily metal scrap from North America.

George Griffiths, the London-based editor of global container freight at S&P Global Platts, has been analyzing and reporting on ocean shipping and containers for the past three years. He says a combination of the onset of the pandemic, sudden pandemic-related demand restrictions being lifted, hiring shortages and subsequent COVID-19 outbreaks at ports and on shipping lines are all factors causing delays and high freight costs. Global demand for goods is not slowing down, either.

“We’re seeing this enormous pent-up demand finally coming to force at this stage,” he says. “That means we’re not able to shake off the equivalent imbalances and shortages of containers in the market. So, we’re stuck in this sort of perpetuating cycle at the moment.”

The COVID effect

At the onset of the pandemic in early 2020, demand for containers was low. China went into lockdown at the start of the year, and much of the world followed suit in subsequent months. No one was certain when demand for goods and raw materials would ramp up to prepandemic levels.

As some lockdowns started to lift in the summer of 2020, particularly in China and other parts of Asia, demand for containers increased. Around this time, Griffiths says companies around the globe started to restock their warehouses. Demand for shipping containers went from virtually nothing to prepandemic levels very quickly, though the coronavirus that causes COVID-19 was still spreading.

Pradhan says 2020 was a very strange year for ocean shipping.

“March 2020 is when we saw the first lockdowns and, to be honest, not long after that we started seeing increases in shipping demand,” she says.

She adds that freight rates began escalating then as well.

Going from low demand to high demand has shocked the ocean shipping industry. While consumer demand and spending can bounce back quickly, it takes more time for shipping lines to add containers to meet that demand.

David Lademan, the Houston-based associate editor of container markets at S&P Global Platts, says that in a normal year, shipping lines would order small batches of new containers to replace old ones and would expect the orders to come in about eight months later. Now, he says, most major shipping lines have placed very large orders for new containers, which can take months to manufacture and move to the shipping lines.

It also takes time for the ports themselves to rehire people who were furloughed or laid off because of the pandemic. With lower staffing levels, it takes longer to load and unload ships. Griffiths says before the pandemic, it would take about seven to 10 days to load and unload containers and get the goods to their final destinations. Today, that time could take closer to three to four weeks in some instances.

He says, “Suddenly there was this huge demand, and the ports struggled to rehire their staff back and bring them back in a timely manner because, obviously, that takes time. Further inland, you have other issues where there aren’t enough people out there driving the trucks and filling up warehouses. So, the market has been battered from all directions.”

Outbreaks haven’t stopped

With people receiving COVID-19 vaccinations this year, outbreaks have been reduced, and fewer places are enforcing lockdowns around the globe. But COVID-19 outbreaks still transpire and at times have affected major ports around the world.

In early 2021 before vaccines were widely available, the ports of Long Beach and Los Angeles experienced major COVID-19 outbreaks, significantly slowing operations. According to a Jan. 20 article from the Los Angeles Times, nearly 700 dockworkers at the Port of Los Angeles and the Port of Long Beach in California contracted COVID-19 that month, and hundreds of other employees were choosing to quarantine. The executive director of the Port of Los Angeles told the Los Angeles Times the port had more cargo than skilled labor, exacerbating shipping issues in the region.

“Those port capabilities really dropped significantly” with the outbreak, Griffiths says. “I think at one point there were 42 ships in a queue off the coast of California just desperate to try to get in there to offload these goods.”

More recently, the Port of Yantian in the province of Shenzhen, China, experienced a COVID-19 outbreak in May, which had a negative impact on global trade.

“That’s one of the largest exporting ports in the world, which has meant that there’s a huge delay there in an already really fractured market where there aren’t enough containers to go around,” Griffiths says. “That’s really caused rates to spike.”

Shippers in all industries are noticing extremely high freight costs. Lademan of S&P Global adds that the cost to ship goods between North America and Asia has increased by 110 to 120 percent this June compared with the same month last year. Compared with 2019, a more normal year, he says prices are about 300 percent higher.

Pradhan is seeing a similar price spike. “We are seeing freight rates of 300 to 400 percent more comparing it to 2019 on some lanes.”

She notes that the pricing situation for freight was very different a few years ago.

“It was a complete trader’s market the last few years,” Pradhan explains. “Every month, the rates would go down because shipping lines weren’t getting enough cargo. There was not enough export or import. Shipping lines were struggling. They had a slump for a very long time.”

But, she says, demand for containers is very high now, and that’s prompted rates to rise. Pradhan adds that she doesn’t expect rates or container availability to improve overnight. “What we see this summer is just the exact same thing we’re seeing in the past few months where rates are going to go higher, services will be lower, and space is going to be crazy tight,” she says.

Shipping empties

Another irritant bothering recyclers is the number of containers that steamship lines return to China or Southeast Asia empty.

“The steamship lines would rather send back empty containers for a faster turnaround, and the bookings are difficult to complete,” Michael Diehl, a senior vice president based in California for Coremet Trading Inc., which is based in New York, told Recycling Today in January.

Griffiths of S&P Global says the practice of steamship lines shipping empties is “nothing new.” He says it’s what that industry calls volume allocation to ensure flows of containerized goods from Asia to the United States or Europe.

But, he adds, what is new is that some carriers are opting to only take empty containers back rather than some loaded containers so they have a faster turnaround time in Asia to fill and reship goods.

“This makes financial sense for the carriers,” Griffiths says. “Just look at the freight rates. If you could get $17,000 [per] FEU (40-foot-equivalent unit) for a trip from Asia to Europe, you’d try as best you could to maximize as many of those trips rather than face a potential 28-day delay on $1,800 [per] FEU worth of goods. As a result, those with cargo to export from the U.S. or Europe to Asia are having some issues finding carriers willing to take their goods, but this situation is easing somewhat.”

Seeking solutions

The shipping industry hasn’t turned a blind eye to the freight challenges exporters have been experiencing this year. Griffiths says shipping lines have a few techniques they are applying to try to alleviate issues for their customers.

One way shipping lines are working to address container shortages is by ordering many more containers. As an example, Lademan says, Hapag-Lloyd has ordered about 210,000 20-foot-equivalent-unit containers this year, most of which will be delivered to the company by the third quarter of the year.

Some shipping lines also are adjusting their schedules to try to alleviate issues. For example, Griffiths says a shipping line might typically sail Monday, Wednesday and Friday. But to ensure ships are totally full, a shipping line might reduce its sailings to just Monday and Friday.

Although shipping lines are making changes, Pradhan suspects it could take the rest of this year or more before ocean shipping challenges noticeably improve.

“We’re going to come through this with some fundamental changes in the supply chain,” she says. “Things are going to change. People are going to have to get more technologically savvy—all of the shipping lines are going that way. But I think the world still needs more time before it gets out of this. It’s not done yet.”

With ocean shipping challenges here to stay at least for the near-term future, Pradhan says recyclers should be diligent about having their bookings in place.

“Know that you are definitely going to face a space constraint,” she says. “The successful recyclers plan their bookings properly. Forget about the just-in-time approach or stocking up. These recyclers have been pushing bookings out for a month or prebooking, making sure they have a dealer in hand to ship because space is of the utmost importance.”

Pradhan continues, “Shipping lines don’t take no-shows lightly. Have your bookings in place a month ahead of planning,” she advises.

The author is managing editor of Recycling Today and can be reached at msmalley@gie.net.