** International Trading Supplement -- A European Panorama

From a European perspective, we think the challenge will be manageable, but we need to do a lot of things in order for that to happen.

SCIENCE & STATISTICS. Just to give you something to think about, science says that the bumblebee’s wings are too small to fly. But, the bumblebee flies. There is a lot of science, a lot of proof given in words that it is impossible for him to fly because his wings are too small. But science and statistics are not always proven to be true in reality. Fortunately, the bumblebee doesn’t understand science, so he flies.

The same is true about the statistics and science presented in relation to the paper recycling industry from 1990 to 1992, especially in Europe. At that time, new packaging waste legislation was being introduced in all of Europe, but there was a concentrated focus in Germany. The Töpfer Decree of 1992 triggered the legislation. In light of this legislation, a lot of extra collection was needed, and everyone expected that it would lead to a surplus of inexpensive recovered paper supply in Europe until 2000.

I can remember those days. At that time, I was working for a waste management company responsible for selling recovered paper. In our management strategy, we went to paper mills and offered them huge tonnages—close to 1 million tonnes—for five to 10 years with a price of $0, delivered at the mill. Fortunately for everybody, nobody signed those contracts.

All the science was clear: Throughout the 10 years following the legislation, there would be a surplus of recovered paper available at much lower prices. But what actually happened? In the first two or three years in Germany, specifically, and in Europe, generally, this scenario was completely right, even when the dip in ’94 is considered. But afterward, the scenario was not valid anymore because everyone had seen the larger picture.

You can have a lot of statistics and a lot of science, but the market will exert its own forces to play on that. That is what happened in the years 1990 up until now. Although all major statistics forecasts were flat and low for the period 1990 to 2002, there was a big peak from 1994 to 1995.

Now, the forecasts indicate that China will eat everyone’s recovered paper in the future, but what will be the true impact of all this new capacity?

I do not think that China will eat everyone’s recovered paper. Why not? European developments are very rapid. Collection is increasing already, especially in the United Kingdom, France, Italy and Spain.

Also, collection is increasing in the Eastern European countries. Initially, collection developments in these countries were quite low, with collection rates not above 30 percent. In this region, collection is really speeding up. Kappa Packaging has a lot of facilities in Eastern Europe. We find that developments in this region are very good and that rates are growing very rapidly.

EUROPEAN EVOLUTION. Paper recovery in CEPI (Confederation of European Paper Industries) countries is growing relative to recovered paper consumption in these countries. That means that in Europe there is an overshoot of recovered paper that is still increasing.

A lot of people think recovery is going down, but when you take the whole of Europe, the overshot in recovered paper in Europe is growing. At the moment, I think we are at 3 million tonnes of recovered paper. That amounts to more paper collected in Europe than is finally consumed in Europe.

Although these numbers are not as high for North America, the same thing is happening there, where there is also clearly more collection than consumption of recovered paper. That is, of course, a crucial thing, because when there is more collection than consumption, at least the fiber is available. And that is the key point.

The evolution of recovered paper collection and collection rates in CEPI countries show that collection rates in Europe are still increasing. We are approaching the 60 percent level, and the amount of recovered paper is clearly growing. We are coming from 25 million tones of recovered paper collected in ’90-’91 and we are now reaching levels of between 50 and 60 million tonnes, so it has clearly doubled. And the thinking is that this development will continue.

In terms of individual European countries, the following applies. In the United Kingdom, there was an overshoot of recovered paper collected in 2001 relative to the amount of paper consumed. And if you look at the developments in the United Kingdom throughout the last three years, it’s tremendous. According to the figures available for 2003, there is an overshoot of close to 2 million tones of recovered paper in the United Kingdom.

It is very interesting how that developed. I can remember operating a recycling business in ’96 and ’97. We were still exporting volumes of paper from Germany to the United Kingdom because there was a shortage of volume there. So you can see what tremendous collection developments there have been in the last few years.

Germany was historically the big pool for recovered paper in Europe and also for European exports to the Far East. That is coming down very rapidly. In 2001, Germany was the next exporter, and in 2003, the United Kingdom is a bigger net exporter than Germany for the first time. People often only look to Germany and say that paper is not available as it was in the past. But we have to look at Europe as a whole. And when we do that, we see that recovered paper exports are increasing in other countries in Europe.

France, for example, has been a net importer as long as I have been in the recovered paper business. In the year 2003, for the first time in history, France was not a net importer, but a net exporter. It is exporting a lot of paper to Spain, but in the past it always needed a lot of paper from Germany for its mills. But that paper has been disappearing.

Now, France has an overshoot. The country is collecting more recovered paper than it is consuming, and that is a big development for Europe, because all of these countries relied on German recovered paper in the past, and that is not necessary anymore.

Poland is an example where collection is increasing. After Poland entered the EU earlier this spring, developments are occurring very fast. Poland has 40 million inhabitants, so as a future pool for recovered paper, it is also a very important country for Europe.

Italy is still a net importer, but, like France, developments are moving very rapidly. Italy needed to import approximately 500,000 tonnes two or three years ago, and at the moment, they are reaching the zero level very fast. And in 2004, Italy for the first time will be a net exporter like France is. It is really a big development that all the countries that were lagging behind are starting to improve.

All of these developments within Europe are going in the right direction. In the United Kingdom, Spain and the Netherlands, things are growing in the right direction for future availability of recovered paper. However, the future viability of these collections depends on one factor in particular.

SUCCESS FACTORS. What stays crucial for the collection of recovered paper is the effort for separate collection of recovered paper at its sources. In some areas in the world with multi-material collections, I think we need to be very careful about that because it impacts the quality of the recovered paper. Taking the trade of recovered paper into account, commingled collections can have a big impact on the quality of material available to the industry. From my point of view, the focus is on separate collection for recovered paper is very important.

As I already said, the current situation in Europe is on the right track. Collection is increasing all over Europe, so we are quite optimistic. Although there will always be pressure and some tightness in certain regions, the general trend is quite good.

But it is not only Europe that will be covering these future demands for recovered fiber. There is also the United States. And developments in the Far East will be crucial, because according to all the theoretical data I have, the collection pushes in China’s big towns and regions will be very crucial for the future availability of recovered paper.

At the end of the day, the market will find its own way, no matter what the theories predict. There will always be new developments that no one will have thought about that will influence things. The market will find its own way, and that is very clear. If separate collection developments continue as they are now, future demand in Europe can be covered.

We need to push for the separate collection of paper. If this continues, from a European perspective, we are quite optimistic that we will have sufficient quantities of recovered paper available to meet the wants of the paper industry in the years to come.