With new capacity coming online ove the next several months, many ask whether the current supply of office paper will meet demand.
Tony Giordano says many considered him a laughing stock when Giordano’s Paper Recycling Corp. started collecting mixed office paper from various points throughout New Jersey more than a decade ago. While Giordano was collecting an indiscriminate range of office papers from commercial buildings, other companies continued to limit themselves to computer paper, white ledger or other, more consistent grades.
With the market now turned on its head, Giordano’s foresight may seem prophetic. "You’d think I was elected president with all the calls I get," he says. "Mills I haven’t done business with for years are now calling me asking me about tonnage."
Indeed, the current mixed office paper market appears to be on a fast track with few obstacles in sight to slow it down. But Giordano is quick to point out that this was not always the case. Until recently, prices have moved at a pace comparable to that of 30 years ago, when the hodge-podge of materials constituting sorted office mixed and its various subgrades was often an alternate grade. When cleaner materials such as sorted white ledger, computer paper and even sorted colored ledger plummeted in price, sorted office paper was not an active grade.
HISTORIES.
It appears that the paper recycling industry has two histories. The first, more familiar story is the traditional paper collection/brokerage/consumption network which operated in relative obscurity until the start of the 1990’s. The new history is evolving at a much quicker pace. Prices, which fluctuated only occasionally, are now prone to almost daily adjustments, retroactive changes, more speculative buying and selling activity, and other dynamics commonly associated with other commodities.Traditional homes for office paper are being stretched. At first, new urban minimills posed competition with older, more antiquated facilities for the raw material. While these entrepreneurial mills helped boost some office paper grades, the severe slump in the paper industry — combined with an inability of equipment to accept a wide range of grades — made it difficult for them to operate successfully and successfully. Patriot Paper, an urban mill which opened in Boston to much fanfare several years ago, ran into problems when it attempted to lower the grade of fiber it was accepting. Finally, the mill had to close.
While these earlier attempts to turn the office paper recycling market around may have been futile, a second wave of projects aims to improve markets for the grade, and possibly shift the market from an oversupply of raw material to a severe shortage. A newer, more sweeping phenomenon is the increase in the number of large, fully integrated paper companies installing equipment to handle greater amounts of office paper.
These new startups are affecting the markets in a number of ways. For one, the presence of multi-billion-dollar corporations is a signal that the paper industry is taking the recycling movement seriously. International Paper, the largest forest products company, is spending millions of dollars to put deinking capabilities in at its paper mill in Selma, Ala. Following closely behind is Boise Cascade, another large forest products company nearing completion of its own office paper recycling facility in Jackson, Ala.
While these two projects, as well as Union Camp’s paper mill in Franklin, Va., are creating more than a few ripples in the market, other groups are installing various types of deinking projects throughout the country in hopes of taking advantage of the sizable urban forest.
RELATIONSHIPS.
This rekindling of "relationships" between suppliers of recovered fiber and consuming mills is a marriage of necessity for many of the newer mills. With more capacity coming on line, there seems to be a growing demand for recovered fiber to feed these mills. Consequently, mills are taking a number of steps to ensure supplies remain adequate, including installing their own sorting lines, establishing long-term supplier contracts, working more aggressively with waste haulers or municipalities for direct shipments.Giordano stresses the establishment of partnerships between suppliers and mills as a key strategy. "Mills have to sit down with the packers to find out what they needed to run the facility." he says. "There has to be a two way street."
Elmer Beale, general manager of Intercontinental Energy Group’s deinking mill in Fitchburg, Mass., says the give and take of partnership is an important facet of IEG’s approach to the market. IEG inked the Newark Group to a long-term supplier agreement in excess of 10 years, Beale notes. The agreement gives the supplier "a steady outlet for material," says Beale, and at the same time "allows (IEG) to have a steady supply of a known commodity." In addition to their agreement to furnish the mill, IEG brought the Newark Group in early to work with other principals to develop the pack that will be used in the machines.
Setting up a long-term contract is especially important when considering the size of the new operations involved. The IEG project is targeted to use around 600 tons of office paper a day, which equates to about 225,000 tons of office paper over a year’s time.
Ellen Roy, vice president of the IEG project, suggests that long-term contracts in the paper business are similar to contracts in the power industry, an area where IEG has experience.
With demand for recycled-content office paper increasing, construction of deinking facilities remains a growth industry. Rust Engineering Co., headquartered in Birmingham, Ala., is one of the leading developers of these projects. Rust, a division of Rust International Inc., provides environmental and infrastructure consulting, engineering, construction environmental restoration and on-site industrial services. The company is currently involved in six office paper deinking projects, including E.B. Eddy’s Blue Water Fiber project in Michigan and the Bronx Paper Project in the Bronx, N.Y., as well as the Union Camp, IEG and Boise Cascade projects.
Another strategy, one that does not necessarily endear itself to the traditional supplier network, is the configuration of a sorting system at the mill’s front end to allow material delivered loose to the door. This allows facilities to take in material at a cost far less than it would for baled material. This way, mills can capture more of the material from residential settings and waste haulers.
While the possibility of working direct with municipalities, waste haulers and/or other entities offers some incentives, there are some in the industry who feel that without the standard network of processors and brokers contaminant and outthrow levels can lead to significant problems with quality. "The more you rely on households for material, the lower your furnish quality will be," one paper industry executive notes. He goes on to cite the probability of having to pull out more groundwood paper such as newspapers, more chipboard and other contaminants, as well as multiple hued papers.
Several packers also question how mills can talk about partnerships and building relationships, when, at the same time, mills are moving into the packing segment of the business.
Dan Sachs, senior consulting engineer/optimizing technology at Rust Engineering, feels that despite the scheduled startup of many deinking projects over the next several years, supply will be met, although he cautions there will be short-term shortages. As for the possibility of mills pulling more material from municipal curbside collection programs, Sachs is less certain.
Jane Erkenswick, vice president of Fiber Options, a Chicago-based paper brokerage operation, agrees that all of the new mills starting up will lead to shortages in supply. "It will take some time to set up the supplies to deliver the material," she predicts.
One West Coast handler of office grades notes that as prices for the material starts to climb, paper stock dealers will be more inclined to go after marginal accounts, which could bring more material into the market.
Sachs suggests that office programs designed to separate more materis out of the stream for office packs would be a step in the right direction.
He expects overall production of freesheet paper to show significant growth through the rest of this decade. Statistics from the American Forest and Paper Association’s Annual Capacity Survey released last month support this projection.
While many builders of these high-volume office deinking facilities are experiencing soaring raw material prices, IEG’s Roy feels the company’s move into the deinking pulp industry will be a "long term bet to make recycled pulp. And it is a good bet."
IEG’s Fitchburg project is an example of this philosophy. While the project is the first foray into the papermaking business for IEG, the company is scouting other potential locations for similar projects, and could build as many as two to three other office paper deinking plants elsewhere.
Along with new capacity, there is need for more than lip service to suppliers. For some mills, it has taken several months to build inventories that could disappear in as little as 30 days once machines start running. Once this occurs, mills will have to rely on their relationship with suppliers to establish a strong supply area.
Reflecting the changing nature of the office paper markets, mills which spent less than $50 per ton of office paper are currently spending twice as much in some cases. With more capacity coming on line, many in the industry expect to see prices continue to remain strong.
Price increases like these could drive some traditional consumers of office mixes out of the market. Many manufacturers of institutional tissue and towel grades have used low grade mixed paper for their furnish for many years. However, printing and writing paper is a more valuable product than tissue paper. The result could be tissue mills unable to justify paying more for the material. Other mills may have to lower the grade they take in.
An alternative move may be toward creating an accepted definition for mixed office paper. Presently there is almost a mill-by-mill definition for various grades of office paper, which makes it more difficult for suppliers to assemble a consistent pack.
As for Giordano, he says he is enjoying the recent boom in office paper markets. How far mills will go into the waste stream is a concern, but he feels that, in order to get the clean material needed, mills will have to work more closely with paper stock dealers.
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