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What will happen in the recovered fiber and paper industries in the next five years?

November 10, 2014

Paper recyclers who like the status quo likely will be delighted with the next business cycle. Although moderate downs and ups are likely, nobody is using terms like “skyrocket” or “nosedive” when talking about either paper production or recovered fiber trends.

“Overall paper recovery will go higher and stay higher … as a percentage,” says industry consultant Bill Moore, president of Moore & Associates, Atlanta. However, he adds, “Production in the United States and North America is going down. That’s where it starts. It’s a business done from a tonnage standpoint, and it has peaked out. I don’t see anything changing that.”

Moore says the markets are in a bit of a quandary. “Most people would have thought there would be tightening because of economic growth and increased demand. But China still seems in a funk. Europe’s funk is [the] worst. Middle East, Africa, Eastern Europe and Russia have political instability, and that does not lead to good economies. Demand has not been very good.”

After firming a bit between May and late July, the markets softened as summer ended. The box-making season for Christmas ended in China, and eventually markets gave back just about all they had gained.

“We are making a bottom now, but I don’t see anything that is going to push the market up over the next few months,” says Moore, taking a broad view of the market.

Seth Kursman, vice president of sustainability and government affairs with Resolute Forest Products, Montreal, says he sees the outlook in much the same vein. He maintains that it is not so important to look at any one company’s recycling rates or any one product’s recycled content percentage. “The market is going where the demand is … it goes to who will pay the most for the product,” he says. “We need to let the markets develop, prosper and mature.”

The macro picture, he says, is the key. “As a whole, recycling continues to go up,” Kursman notes.

Resolute’s production includes a 100-percent-recycled-newsprint mill in Thorold, Ontario, which complements operations the firm has in Fairmont, West Virginia, and in Menomonie, Michigan.

Ten percent of the raw material in Resolute’s feedstock is recycled, Kursman says, which he adds “is quite a statement.”

The recovery picture

Still, the overall U.S. recovery rate has slipped from 65.1 percent in 2012 to 63.5 percent in 2013. The decline was attributable to a 6.3 percent reduction in exports of recovered paper from the U.S. because of economic weakness in certain key consuming markets.

That said, recovered paper consumption at U.S. paper and paperboard mills actually increased by 230,000 tons in 2013. According to the American Forest & Paper Association (AF&PA), Washington, 63.5 percent of all paper consumed in the U.S. in 2013 was recovered for recycling. The recovery rate has met or exceeded 63 percent for the past five years.

While AF&PA does not forecast an outlook for paper recycling, the association’s Executive Director of Recovered Fiber Brian Hawkinson notes industry research firm RISI projects that North American paper recovery will expand at an average annual rate of 1 percent from 2014 through 2018.

RISI, a Boston-based global supplier of forest products information and data, says it anticipates an increase in recovered fiber use following the startup of new paper machines, upgrades of paper machines to increase capacity and the conversion of paper machines to products that use more recovered fiber.

AF&PA considers paper the most recycled material in the U.S. today. More paper (by weight) is recovered for recycling from municipal solid waste streams than glass, plastic and aluminum combined. A lot of paper is available to recycle. The U.S. EPA (Environmental Protection Agency) says paper and paperboard packaging accounts for more than 74 percent of all packaging materials recovered for recycling in the U.S.

Outlook by type

Although taken together when overall paper recycling figures are cited, each of the major paper grades—corrugated and solid fiber, SOP (sorted office paper) and ledger, newsprint and mixed paper—should be seen as separate markets, and the outlook for each is unique.

“Corrugated and solid fiber box businesses are stable to seeing modest growth,” Moore says. Supplies of OCC (old corrugated containers), DLK (double-lined kraft) and paperboard probably will increase modestly,” he adds.

Premium writing papers—SOP and ledger grades—will continue to fall. “Almost every month, we see lower production and lower use of the premium writing paper grades,” Moore says. This includes office papers from document destruction, office forms, printers’ scrap and envelopes.

Newsprint continues to decline. Viewed in the short term, the numbers appear to be slowing markedly. “The decline, percentagewise, is smaller just because it has fallen so far, but there certainly is not going to be an increase in old newspaper,”

Moore asserts. In short, it’s hard to be killed jumping out of a basement window. Moore says to expect a modest increase in mixed paper supply.

The use of OCC by U.S. mills rose 3.9 percent in 2013 to 19.8 million tons. However, that gain was not enough to offset last year’s 8.9 percent drop in U.S. OCC exports. As a result, the OCC recovery rate slipped from an all-time high of 91 percent in 2012 to 88.5 percent in 2013.

“OCC is very much China- and economy-driven,” Moore says. It was a major gainer into the summer and then bottomed. “At some point, it will break out when the economies turn around,” he says. That could take a while as European demand, which is a large part of the China market, is paltry. Domestic demand in China is so-so, and its internal economy, while OK, is not stellar.

With the U.S. economy continuing to grow at 2 to 2.5 percent, there is no economic bonfire.

“I would look to have some upside of OCC in the next 12 months,” Moore predicts. “Whether it will be modest or a real push is an open question.”

The recovery rate in the category of “news/mechanical paper” slipped from 70 percent in 2012 to 67.6 percent in 2013. AF&PA says that reflects declines in the recovery of these grades for domestic use and for export. Lower domestic newsprint production and weakness in global recovered paper markets contributed to the recovery rate decline.

Demand for newsprint is lackluster at best. The only increase in demand is for paperboard grades in Asia and that must be termed modest at best.

“The only thing that keeps that market in balance is that supply is extremely constrained,” Moore says. “I don’t see a lot of upside, and I don’t see any downside in that market. I’d say ‘stability’ is the word,” he says.

Weaker still was the recovery rate for printing and writing papers. It fell a full percentage point from 54.1 percent in 2012 to 53.1 percent in 2013. That may reflect weak export markets, sources say.

The lion’s share of demand in the SOP market is for tissue. “It is fairly good—one of the better businesses,” Moore says. “However, there is not a lot of recycle capacity coming on.”

Demand for SOP—a key grade used in tissue production—should be reasonably good, Moore says. Supply definitely is falling as fewer Americans use premium writing grades.

“I think we will continue to see modest to more-than-modest increases in the SOP grades,” Moore says.

Mixed paper is almost totally related to OCC. It is one of the few grades that has a chance to go into oversupply. On top of that, end markets are limited.

“My outlook is weak to stable at best,” Moore says of OCC.

If OCC were to shoot up, mixed paper prices would pop, he adds. However, he advises looking for mixed paper prices to remain stable to weaker.

Consumption down slightly

While paper recovery has increased compared with several years ago, North American consumption of recycled paper is down. That does not mean the paper is not being recycled.

“You see more recycled fiber is going offshore,” Kursman says.

Part of that is because recycled materials are not a cost-effective fiber source for some mills. That is mainly related to the physical location of the mill. The greenhouse gas footprint for shipping tons of newsprint or coated stock for recycling can be much larger than any savings recycling can yield.

Never hit 100

AF&PA has expressed an industry-wide goal to exceed a 70 percent rate of paper recovered for recycling by 2020. It points with pride to the fact that U.S. paper recovery has increased by more than 70 percent since 1990 because of the efforts of the paper industry and the millions of citizens who recycle.

While it always is possible to do better, most in the industry are fairly happy with a paper recycling rate that floats around 70 to 80 percent.

“All segments of the recovered paper market are driven by the same supply-demand dynamics that characterize the broader economy,” Hawkinson notes, adding that AF&PA does not forecast outcomes for any recovered paper market.

Much of the paper gathered in North America goes overseas. Hawkinson says that is because paper recovery has fostered a dynamic marketplace that allows recovered fiber to find its highest value end use. “That, in turn, helps to encourage more recycling,” Hawkinson says.

Paper recovery will never be at 100 percent. Some paper gets wet and cannot be used. Other paper, such as toilet tissue and napkins, gets soiled and stained and is not suitable for recycling.

“What is the highest practical number?” Kursman muses. “Today we are a lot closer to it than what we used to be.”

Moore says he believes recycled fiber use for a number of grades has peaked. New capacity in tissue grades is coming online using virgin material. Nobody is building new newsprint facilities. Anyway, it is more economical to use virgin than recycled fiber for newsprint, he says. “Recovery is already fairly high,” Moore says.

OCC recovery will continue to grow, sources predict, adding that more recovery of corrugated boxes can be achieved from many sources.

The more mixed, single-stream commercial recovery that comes online, the better the outlook for growth. That is where fiber remains to be recovered in the form of mixed paper, and, sadly, that is probably the weakest segment of the overall market.

The problem with single stream is that quality can suffer. Multilayer packages and freezer packaging actually lower the recyclability of the typical load of material and come out as residue.

Moore says better public education, definitions and incoming material quality will help. “We are not going to get away from single stream,” he concedes. “It’s the only way to get the last tons out.”

Some say increasing market prices would help. But, as Moore notes, higher prices don’t bring more paper tonnage to the curb. Paper simply is not price-responsive in the way copper scrap or gold jewelry are.

Paper packaging is doing well. Moore says molded fiber products, ranging from egg cartons to form-fitting boxes to food packaging, could represent a growth area.

Until the 1980s, paper had almost all of the egg carton business. Then polystyrene took the market away by the 1990s. Recently, polystyrene has lost market share, and paper has made a comeback.

The story is the same on the foam clamshells used for burgers and burritos.

The molded-fiber product business is mainly based on ONP or newsprint scrap. As noted, both are in limited supply.

Manufacturers in the tissue segment also are looking for alternatives to recovered fiber, including bamboo.

An optimistic outlook would have these sectors using variations on mixed paper.

What it means

Both municipal facilities and private disposal sites have to keep a close watch on paper recycling. For every ton of paper recycled, an average of 3.3 cubic yards of landfill space are saved.

What makes paper recovery successful, says Hawkinson, is it is voluntary and market driven.

“Two significant drivers for increased recovery are broad access to recycling and increased consumer participation,” Hawkinson says. He emphasizes consumer education is critical to driving increased participation in recycling programs and ensuring that the fiber collected meets the quality standards of paper and paperboard mills.

“AF&PA continues to promote paper recovery for recycling and to educate Americans on the benefits of paper recycling,” Hawkinson adds.

Wherever the markets end up, paper recovery is driven by the same supply-demand dynamics that characterize the broader economy. Recovered paper that was sorted or processed in the U.S. had a 2012 market value of $8.4 billion. The value of U.S. recovered paper exports totaled $3.1 billion in 2013.

“Overall, paper recovery will stay high, as a percentage, and will continue to go higher,” Moore says. “But our production of paper in the U.S. and North America is going down, and that’s where it starts. If production goes down, the amount recovered in tonnage is going to go down,” he concludes.


The author is a contributing editor to Recycling Today based in Cleveland and can be contacted at curt@curtharler.com.