Deinked Pulp Fact or Pulp Fiction

Forget the hype that almost killed office grades several years ago. The grade is improving in fits and starts. Deinking plants are helping, although caution is still being expressed as they come bac

No other grade has been so anticipated and then vilified as deinked pulp. Stand-alone deinking pulp operations were expected to herald the start of a boom for office grades. The federal government was to aid the situation with strong buying of the finished product. Private industry would follow the government’s lead and purchase more of the finished product.

This mentality created a mad dash as groups rushed to put together financing packages to build operations that would convert low grades of office paper into deinked pulp. Various groups issued bonds, which were quickly snapped up by investors who expected to see the new, environmentally-friendly process translate into financial success.

An apparently unexpected problem, however, cropped up: markets came into play.

Deinking mills, which opened up while pulp was trading at more than $800 a metric ton, soon experienced the effects of sharp price declines.

Deinking facilities expected to take advantage of lower quality (re: less expensive) recovered fiber to make the finished product. This would give these deinking pulp operations a distinct advantage over virgin pulp producers.

This edge did not develop. An article in Forbes magazine last year crystallized the problem. The list of mills that experienced significant problems included the following:

American Fiber Resource, West Virginia, opened up earlier this decade and then closed; Massachusetts Recycling Associates, Massachusetts, closed; Great Lakes Pulp & Fibre, Michigan, defaulted on its bonds; 1st Urban Fiber, Maryland, closed; and Auburn Fiber, Auburn, Maine, defaulted and sharply scaled back its operations. Other mills mentioned in the article also struggled with both using the grade of recovered fiber they were slated to handle as well as with producing a finished product that met quality specifications.

Moving toward the middle of this year, the landscape is changing. Several mills that closed are expected to reopen in the near future, while other projects are gradually increasing their operating schedules.

American Fiber has been sold to a group that owns Great Lakes’ Menominee, Mich., operation. The mill, closed for more than one year, is expected to reopen this summer.

The Great Lakes Pulp & Fibre mill, which filed for Chapter 11 bankruptcy protection late last year, has since come out of protection, and the company feels it is in much better financial health.

"Great Lakes is a stronger, more competitive company today,’’ says Great Lakes President Lars Dannberg in a release issued upon the company’s emergence from Chapter 11. "We can draw upon new equity working capital and other resources needed to compete in the global marketplace."

The Fitchburg, Mass., deinking facility also is expected to reopen by the middle of this year, after some additional equipment is installed. Once the plant is operational, the company hopes to find a buyer for the project.

David Burkhardt, director of corporate communications for Harnischfeger Industries, the present owner of the project, expects the mill to reopen in one to two months. Harnischfeger, Burkhardt points out, is the largest creditor of the former operation.

While the company expects to start running the plant around mid-year, the mill, now named Fitchburg Operations LLC, will have to prove the economic viability of its operations. As of yet there isn’t a decision whether or not the facility will be producing market deinked pulp or will be using additional equipment to make finished product. "We have to prove the economics are based on supply and demand," says Burkhardt.

The Maine deinking facility, initially owned and operated by Stone & Webster, has been returned to AT&T Capital, the financing group for the mill.

The Auburn, Maine, mill, which was running only to fill orders, has been running progressively stronger schedules. According to David Swanson, mill manager, the mill has been increasing its production, although the path to success has been very difficult. Part of the problem has been the quality of the material coming in the door. Another problem is the difficulties with the world pulp market. After cresting at more than $800 a metric ton several years ago, prices have been plummeting. For deinking pulp operations, the price of wood pulp is forcing down prices for deinked pulp, making it more difficult to sell deinked pulp at a profit. Swanson feels that any improvement in the market will be due to an overall improvement in world pulp markets. At the present time he sees the low cost of wood pulp as the biggest obstacle to an improvement for the grade.

Although there appears to be momentum that market pulp prices are starting to improve, some producers worry that higher prices could create a situation where pulp producers, either deinked pulp or virgin pulp, could start dumping pulp on the market, curtailing any rally.

Increased buying support by the private sector, as well as greater support by the federal government, is needed to improve the grade, say some participants.

An example Swanson uses is the success the telephone directory publishing industry, in particular the Yellow Pages Publishers Association, has had in promoting recycled-content paper. This has led to a strong groundwood newsprint deinking industry. The same, however, can’t be said for the printing and writing paper industry, he feels.

THE NEW LANDSCAPE

The Great Lakes Pulp & Fibre plant, along with emerging from its Chapter 11 plan, also is now involved with the West Virginia project. The original name of the mill has been changed to Adirondack Recycle. The company hopes to have the mill operational by the middle of this month.

While some of these projects are coming back on line, there are still problems and issues that need to be dealt with. One is making sure there is an end market for the material.

Luigi Silveri, a project coordinator for Beloit, said the key to making deinked pulp a success is selling a product of equal quality in a cost-effective manner. One advantage that some deinking plants have includes having the deinked pulp shipped to a mill close by to reduce transportation costs.

For collectors of office grades, despite the problems with a number of these newer deinking facilities, markets are still fairly strong for the grade. As opposed to putting all their eggs in one basket, many recycling companies still handling the grade have split up their supply to companies other than just the newer stand-alone deinking plants. Anthony Giordano, president of Giordano’s Paper Recycling, a Newark, N.J. paper stock operation specializing in office grades, sees good things for the grade. Along with the start of several new facilities, buying is fairly strong for other mills, especially for tissue mills. "Business is good. Supply is down and demand is up," Giordano points out.

Other paper stock dealers are less optimistic about the viability of these operations, and the grade itself. Several companies that were "burned" by the earlier incarnations of deinking projects are withholding their support. Industry watchers also are not yet convinced there is a bright future for these grades.

Chip Dillon, a paper analyst for Salomon Brothers, sees these deinking pulp operations as being at a distinct disadvantage. Dillon feels there will be a market for deinked pulp when pulp prices climb. While Dillon feels pulp prices should start strengthening the second half of this year, deinked pulp will not necessarily show the same resilience. An analogy Dillon uses is that if a Lamborghini or Cadillac is being sold for $500, no one would buy a Taurus. However, once these more expensive cars start being sold for $40,000 or more, the market for Taurus’ then increases. Generally, without high pulp prices, Dillon feels stand-alone deinking facilities are "white elephants."

Ed Sparks, a consultant to the paper recycling industry, expresses a less pessimistic view of the future of the deinking pulp industry. Sparks sees the grade and the mills still operating as holding good promise for the future. For one, while a number of these mills fell due to equipment problems, many of these problems are being remedied, and once the equipment is in place many of these mills will be able to take in the lower grades of office pack that they were originally slated to handle.

While there will be a future for these stand-alone operations, it is more likely that the mills standing the best chance of surviving the tumultuous market are integrated operations such as Union Camp’s Franklin, Va., mill and International Paper’s Selma, Ala., operation.

Dillon notes that while some of these deinking pulp facilities have been acquired for pennies on the dollar, the future for these mills will more likely lie in creating lower value finished products such as tissue paper and containerboard, where quality issues will not be as strong.

Randy Wolfe, who had been with the Recycled Paper Coalition, also is uncertain about the future of the grade. Wolfe, presently with Rapid Paper, a Pennsylvania paper stock operation, sees most of the success going to the integrated operations, such as Union Camp’s Franklin, Va. mill, and International Paper’s Selma, Ala. mills.

According to Wolfe, the price weaknesses have led to continued problems with the grade.

Mary Cesar with Jaakoo Poyry, a consulting firm that has performed a number of engineering and marketing projects for several deinking plants, also is withholding any judgement on the recovery of the deinked pulp industry.. "There still is some question whether these mills will be able to use the fiber to make deinked pulp," she says.

Giordano sees the market for office grade strengthening over the next six months. New buyers are coming onto the market, which is adding to the overall strength of the grade. In addition to Great Lakes Pulp being able to make deinked pulp from tissue quality fiber, other mills will see an improvement in the technology that will allow them to expand their collection of lower grades of office pack.

Prices in the first half of 1998 have been strengthening, which is expected to help the overall situation. Even with scattered mills still not running at full capacity, the table is being set for steady-to-strong recovery of the grade.

While a less than optimistic opinion is expressed by some, others feel that the worst is behind the industry. Giordano sees the start of new mills continuing to add to the demand. At the same time, there has been very little in the way of new collection programs. Many companies were burned by the earlier problems with the deinked pulp industry, and are less likely to jump into the market.

A wild card for the new deinked pulp operations is the price of the raw material. While the price of the grade has remained fairly stable over the past several quarters, if more of the capacity comes on line, prices could skyrocket, not a tempting topic for many consumers. If prices soar, many of these deinking operations could face raw material costs too expensive to affordably make finished product. This could force some deinking pulp operations out of business.

Cesar says that while there are some positive signals in the market, the uncertainty over the long-term health of a number of these operations has resulted in many people withholding their judgement about the grade.

Despite the problems with many deinking mills, a host of mills—whether integrated or stand-alone—are running at a strong enough clip to warrant steady movement of the material. At the same time there are more buyers for the grade in the market. Some are tissue mills, including Fort James, while others are integrated mills such as Union Camp. Still other mills are stand-alone operations such as Great Lakes Pulp & Fiber.

Either way, with a reduction in the amount of material being collected, those still collecting the material should see steady to strong markets.

As for the future of the deinking industry, without a firm commitment from the Federal Government, many feel that end markets will be predicated on the overall pulp industry.

The author is senior editor of Recycling Today magazine and editor of Fibre Market News.

 

Sidebar

PSI Looks to Lead Paper Recyclers

Developing, amending and changing with the times is the nature of any successful group. For the Paper Stock Industries (PSI) chapter of the Institute of Scrap Recycling Industries Inc., these changes mean continually working to stay current with the dynamic paper recycling industry.

The best way to stay current is through networking with other members to keep in touch with markets and business. Whether on the golf course or in a more formal office situation, PSI members have found the opportunities and contacts gained through membership in PSI have been invaluable. Business for many paper stock dealers is still done with a handshake. This approach stresses the importance of developing relationships, something PSI members have done through the numerous meetings held throughout the year.

Another key role PSI provides is developing the Scrap Specifications Circular, which provides one of the most universally accepted guidelines for various grades of recovered fiber. Far from a static book, there have been a number of changes done to reflect the changing dynamic of the industry, says Ray Petermeyer, president of PSI and vice president of E-Z Recycling, Portland, Ore.

Petermeyer says that the growth of the office pack grade is just one instance where PSI is changing and adapting to the changing recycling environment.

Being a member of PSI offers a variety of other benefits, according to Petermeyer. One advantage is that as an ISRI chapter, paper stock dealers in PSI have lobbying representation in Washington, D.C. Further, membership in PSI entitles a company to a special insurance policy, as well as access to a national supply cooperative that allows members to purchase goods at discounted prices.

Petermeyer says that one of his goals as president is to increase the membership of the PSI chapter.

ISRI also is looking to develop a new chapter that is geared to dovetail with PSI. Signing up with the ISRI Nonmetallic Consumer Associate Chapter will increase opportunities to network with suppliers in more than 40 events each year.

As an associate member of the new group, a company will be asked for input on developing and creating published scrap paper specifications, will be encouraged to participate in PSI Chapter and Nonmetallics discussions, can address common industry problems to help achieve legislative and regulatory goals, and will have access to the lobbying efforts of the association.

PSI will be holding its summer meeting in Lincolnshire, Ill., (just outside Chicago) July 21-22, and its annual fall meeting in Palm Springs, Calif., Nov. 11-14.

—Daniel Sandoval

Get curated news on YOUR industry.

Enter your email to receive our newsletters.

Loading...