Continental Congress

The state of the economy heading into the fourth quarter of 2008 was a foremost topic at the 2008 European Paper Recycling Conference, which took place at the Marriott Amsterdam Oct. 3-6.

The event, organized by the Recycling Today Media Group, drew more than 150 attendees eager to make and renew trading connections and gain insight into the status of the paper recycling and paper making industries.

In addition to the state of the wider economy and the health of the paper industry, sessions also examined trends in recovered fiber collection, shipping and global trade.

After several years of predominantly healthy conditions, the global economy "has deteriorated considerably over the last several weeks" economist David Clapp told attendees of the conference. The paper industry would not be spared if economic woes set in, he predicted.

Clapp, an economist with RISI, Bedford, Mass., provided his observations on how the global credit crisis might soon affect the paper industry in a session titled "The Paper Economy."

Although characterizing himself as an optimist, Clapp nonetheless said the United States was entering its "deepest recession" in a generation and that it "could be looking at its worst economy since World War II."

In addition to the turmoil in the financial and credit markets and a stagnant housing market, Clapp remarked that "China has begun to slow," which was an extra dose of bad news for packers and shippers of recovered fiber both in North America and Europe.

Forecasts cited by Clapp had China’s GDP growth falling from 10.5 percent in 2008 to a more modest 8.5 percent in 2009. In the United States, he said he foresaw 2008 ending with 1.4 percent GDP growth, but saw GDP falling 0.4 percent in 2009. Likewise in the EU, he saw 2008 showing 1.2 percent growth, but GDP falling 0.2 percent in 2009.

For recovered fiber in particular, Clapp said demand globally "has lost momentum, and prices are responding." He cited fears of mill overcapacity in China, particularly if that nation’s export markets cooled off in 2009. Many planned mill expansion projects have been put on hold, said Clapp.

For recyclers in North America and the EU, this means pricing "will merge from [its] weakness slowly," Clapp predicted.

And finally, if credit markets do not improve, paper makers and other recovered fiber consumers around the world may also have to contend with difficulty obtaining credit for expensive maintenance and upgrading projects at mills in their capital-intensive industry.

For companies that Clapp characterized as "marginal players," this could be especially problematic.

Throughout this decade, Chinese containerboard maker Lee & Man Paper Manufacturing Ltd. has aggressively added capacity yearly to meet China’s seemingly endless need for corrugated packaging.

In an open forum with attendees of the conference, however, company CEO Raymond Lee remarked that the year 2009 was likely to end that streak. "In 2009, we have no new capacity scheduled—it’s the first time in 10 years," he stated.

After several years of 10 percent-plus growth in containerboard production in China, Lee characterized demand growth as occurring at a much slower rate than in 2008 and said he saw the same growth "if any" in 2009.

Lee cited weaker export markets for manufactured goods in China; potentially less household consumer consumption in China in 2009; less capital spending by the Chinese government (which makes up 30 percent of the nation’s economy, he noted); and less foreign capital spending as all being factors in the slowdown.

In addition to the relative lack of new capacity in 2009, Lee said he foresaw some "small, inefficient" containerboard mills in China shutting down next year. Overall, he predicted "the net capacity change [in 2009] will be slight."

In response to a question from moderator Bill Moore of Moore & Associates, Atlanta, as to whether Lee & Man would add production in places other than China (the company has a mill in Vietnam), Lee replied, "Geographically, we consider ourselves an international producer." He added, however, that "China and Vietnam will be our core focus for the next three to four years [as they have] the greatest growth potential."

Lee also said he did not anticipate that Lee & Man will expand vertically either into the recycling business or the converting or box-making business.

Shipments of recovered fiber moving from North America and Europe to China have escalated during this decade, but scrap paper continues to move along other international routes as well.

In a session on global markets at the conference, moderator Wade Schuetzeberg of ACN (Europe) noted that Japan had become a considerable exporter, having "grown dramatically to be a key player in the global fiber market."

Schuetzeberg said Japan, which generates 23 million metric tons of recovered fiber but consumes only 19 million, is now "the third largest exporter, behind the United States and the EU." The nation’s shipments were also generally highly valued for their quality, said Schuetzeberg.

Within Europe, Jim Malone of Severn-
side Recycling in the United Kingdom noted that markets for the U.K.’s increased collected tons have been strong overseas, in nations like China and Spain, but that environmentalists who advocated a smaller carbon footprint had been questioning the practice.

The export markets have been necessary, however, as the U.K. has had numerous mill closures this decade. Malone noted, however, that three new mills were under construction in the U.K., with a St. Regis plant opening in 2009, India’s Palm opening a mill in 2010 and Spain’s SAICA opening a mill in 2011.

Carlos Ventos of SAICA remarked that this decade has been one of "evolution" in his nation, with a boom in both supply (tons collected) and demand. Both booms have meant that Spain’s paper industry has gone from being "a local market to a global market."

In particular, Spain has been importing large amounts of OCC and other brown grades to feed its container board mills. Overall, Spain has seen 1 billion euros invested in new mill capacity this decade, including in board, newsprint and tissue mills.

A new challenge for Spanish mills has been competition for tons with Asian buyers. Before Asian buyers came into the market, "We had higher margins," according to Ventos.

For paper recyclers who move material long distances, shipping companies were crucial allies, according to Ranjit Baxi of J&H Sales International, London.

Baxi, who moderated a session at the conference titled "The Impact of Logistics," said that for recyclers "to succeed in business, our key partners" in the shipping industry and recyclers "must be aware of each others’ roles."

Baxi estimated that on a typical day some 21,000 trucks are deployed somewhere on the planet moving recovered fiber from point A to point B, and some 5,000 ocean shipping containers may also be in transit on a typical day.

In Europe, ocean shipping is undergoing a change with the dissolution of the Far Eastern Freight Conference (FEFC), a consortium of shippers that previously had been able to coordinate their pricing and schedules.

As of Oct. 18, each company would establish its own rates, noted Baxi.

He also noted that since July rates in general had been falling, partly because fuel prices finally began to moderate.

Peter Hall of the London office of APL Logistics noted that fuel costs had grown to represent 71 percent of the overall cost of shipping in August 2008, when fuel prices had peaked.

The balance between capacity and demand is another major pricing factor, and that balance appears to be shifting toward capacity exceeding demand.

Hall noted that "less consumer spending due to less consumer confidence means less demand for products," and that while global trade growth was "not negative yet," it was slowing.

This is occurring at the same time that container ships ordered two years ago are now beginning to be added to shipping line fleets.

The balance shift was apparent already, said Hall. FEFC companies ran at 97 percent of capacity in the second quarter of 2007, but that rate was down to 88 percent in the first quarter of 2008, Hall told conference attendees.

Alan Bog of the Changshu City, China, office of port operator Westerlund, said he did not foresee shipping rates falling through the floor. "I don’t think we’ll go back to when shipping was a cheap commodity market."

But Westerlund’s Bog did note that margins for container shippers appeared to have peaked in 2007 and that, because of the state of the overall economy, carriers "have concerns."

The concerns of shippers match those of papermakers and recyclers heading into 2009, as concern mixes with hope to see whether world leaders can help keep the global economy out of the path of further trouble.

The author is editor in chief of Recycling Today and can be contacted at btaylor@gie.net.