PAPER RECYCLING CONFERENCE: Procurement Proves Puzzling

Ed Tucciarone of Smurfit-Stone Container Corp. moderated the session, which included presentations by Andrew Bell of Sonoco, Tom Cihlar of Caraustar Recovered Fiber Group, Colin Johnston of Abitibi-Consolidated and Marc Forman of Georgia-Pacific/Harmon Associates.

In his introductory comments, Tucciarone said that as more companies consolidate and acquire debt, their cash flows tighten, resulting in less material being held in inventory. He said this was true regardless of the grade.

In terms of OCC recovery, Tucciarone said that the Western Europe leads the pack with an 86 percent rate, the United States follows with 76 percent and China reports a 52 percent to 61 percent rate, though the quality of the fiber is marginal.

Most OCC (61.8 percent) is returned to containerboard mills, while 18.5 percent is exported and 16.3 percent goes to make recycled paperboard, he said, citing American Forest & Paper Association (AF&PA) figures.

When it comes to ONP, the gap is much narrower, with 30.8 percent going back to newsprint mills and 28 percent being exported, he said, again citing AF&PA figures.

With the growth of new mill capacity occurring in Western Europe and China, export of recovered fiber is expected to grow, he said, adding, “Mixed paper is the growth grade.”

Tucciarone said that U.S. recovered fiber exports will need to grow from the current 14 MM tons to 20 MM tons in 2010 to satisfy world demand.

Mills are also becoming more concerned about the quality of the recovered fiber available. Tucciarone said that newsprint mills are worried about the glass contamination in fiber from single-stream collection programs. Also, Asian OCC is negatively impacting fiber yield for containerboard mills, while shredded paper is also exerting a negative influence at some mills.

Sonoco’s Bell talked about the degradation in the fiber supply, saying that Sonoco will pay more for higher-quality fiber and less for Asian-only OCC because of its shorter fibers. 

To ensure a regular supply of material, Bell said Sonoco likes to contract half of its material, giving the company flexibility and taking mill downtime into account.

Bell also talked about how the relationship between the buyer and seller is key to success. “Building and maintaining relationships is very, very important.”

Caraustar’s Cihlar also emphasized the need for quality fiber. “Quality is most important to our mills. Everything else is secondary,” he said. “Buyers must be in sync with vendors on their quality expectations and must be consistent in holding to their standards.”

He also said that consistency was the key to good mill buying because it leads to good quality and lower delivered costs.

Cihlar said several of Caraustar’s mills share fiber sources, which helps to provide consistent movement for its vendors. “A lot of our mills overlap in our buying efforts, and we have to be careful that we don’t compete against one another,” he added.

Caraustar uses open market purchasing for most of its recovered fiber, Cihlar said, because the company does not consume major quantities of particular grades at most of its mills.

The company’s mills keep anywhere from two to 12 days on inventory on hand, he said. “Consistency of usage and supply allows us to have lower inventory at some mills,” he added. “Some carry only two to five day inventories.

Cihlar said that export does not have a “big effect” on procurement at most of Caraustar’s mills because of their locations. “Caraustar also have its own export arm and brokerage group that can move tons from our suppliers, which again will help provide consistency of movement,” he said.

Harmon and Associates surveyed its suppliers, asking them to rank the most important aspects of fiber procurement, Forman said. Integrity, payments, customer service and relationships were the top four “givens,” and price came in at number five.

Forman said that Harmon aims to be a “consistent home to our suppliers,” and that the company prices itself competitively to get the tonnage it needs.

When it comes to the quality concerns surrounding shredded office paper, Forman said, “The issue is not shredding, the issue is sorting. We don’t need new specs for shredding. The industry doesn’t need to respond to shredding.” He added that shredders needed to know the specs and to take more care when sorting.

Abitibi Consolidated’s Johnson said that the sorting line requires proper supervision and that it is critical to quality control.

The company keeps 10 to 12 days of combined on- and off-site supply, Johnson said, adding that the amount is adjusted for seasonal generation. Fifty percent of the company’s ONP supply is contract-based.

Johnson said that centralized buying has worked well for the company, which employs four North American buyers, one Pan-Asian buyer and one buyer for outside sales. Abitibi shares tonnage among its mills and exports off shore if its tonnage is high, he added. “Mill consumption volatility is a given,” he said. “Centralized buying helps in this case.”