Growth Market

Published October 27, 2009

In the United States, currently we are recovering about 3 million tons combined of office paper and coated book. Of that 3 million tons, about two-thirds is office paper and one-third is coated book stock. Ninety percent of that is ultimately consumed in tissue mills or printing and writing mills.

IN DEMAND
Let’s start with the demand side first and some things that are currently happening.

We’ll start with the good news: Tissue mills globally are actually growing right now by about 3 percent per year. In 2008 there was a 3 percent growth rate, and it looks like predictions are for 3 percent growth in 2009. Even in the first quarter of 2009 in the United States, where many industries were really struggling, first-quarter tissue production was only down about 1.9 percent compared with the first quarter of 2008. Compared with a lot of other sectors in our industry, the tissue mills are doing a lot better.

The printing and writing side shows a much bleaker picture. In the first quarter of 2009, U.S. printing and writing production was down 24 percent. Globally, demand is dropping as well, down 4 percent in 2008. Demand is dropping not only for last year, but on an ongoing basis. Looking back at the printing and writing wholesalers’ revenue, which peaked in 1996 at $43.2 billion, it has been declining globally ever since, and that’s pretty much year over year. In 2008, it stood at $41.9 billion.

Paper's Ups and Downs

The paper recycling industry saw a severe interruption in the second half of 2008 to what had been an enjoyable run of robust demand and healthy material generation.
Panelists at a session at Recycling Today’s Paper Recycling Conference in Atlanta provided an overview of recent market conditions in three major recycled paper sectors and their views on factors affecting the current market.
At the “Across the Grades” session, moderator Bill Moore of Moore & Associates, Atlanta, looked at 10-to-12-year trends in recovered fiber markets to show how OCC (old corrugated containers), ONP (old newspapers) and especially mixed paper are all exported from the United States more than they used to be.
In 2008, some 63 percent of mixed paper was exported and 36 percent of ONP. That compares to 24 percent of mixed paper and 14 percent of ONP just 11 years earlier in 1997. The export markets, said Moore, had helped recyclers find outlets for the additional tonnage that had been collected in the United States (although collection peaked, at least temporarily, in 2007).
Newsprint makers have faced a declining market recently, acknowledged Robert Cook of AbitibiBowater, Montreal. “We’re now seeing double-digit declines in newsprint usage,” Cook said of the recent North American market, where many newspapers have lost readership, reduced their page size and printed fewer pages on average.
For recyclers, this same factor hurts their supply lines as programs collect less pure ONP and often try to make up the tonnage by collecting magazines, mixed paper and boxboard.
Packaging grades have been in demand from China throughout this decade, while domestic consumption in the United States may have peaked in the late 1990s, according to Erik Deadwyler of RockTenn Co., Norcross, Ga. Since that peak, domestic demand had declined by 12 percent, said Deadwyler.
Predicting what would happen with OCC next was as uncertain as forecasting for the overall economy, said Deadwyler. “Once you figure out what’s going on in the global economy, you can figure out what’s going on in the containerboard industry,” he stated.
Recycling Today’s Paper, Plastics and Electronics Conferences were held June 7-9 at the Hyatt Regency Atlanta in that city’s downtown.
– Brian Taylor

These printing and writing paper numbers include virgin and the recycled content, but the recycled content in printing and writing paper over the last eight to 10 years has held about the same overall. Looking at those numbers, we’re not using more or less recycled content.

What is really interesting on the demand side is what is going on at the deink pulp mills currently. We’ve touched on the tissue mills, which are consuming the lion’s share of the high grades, and they’re running fairly well. Supply is down in particular for coated book stock, which makes sense because the deink pulp mills are making less of that material. I believe we are seeing that deink pulp mills are falling out of favor.

There are a couple reasons for that. One is the black liquor tax credit, which is giving virgin pulp mills a heavy incentive to purchase material, which gives them a price advantage. Number two, they are competing with virgin pulp, specifically in the printing and writing market. In South America they are able to import pulp at a much lower cost than the U.S. deink pulp mills are able to deink material and deliver it to the customer.

Also, the U.S. demand for recycled printing and writing paper is not increasing. When we talk about the future, we put a lot of time and effort into legislation on the supply side; getting people to recycle more at home and getting people to recycle more at work. But I don’t think we have put as much effort on the demand side.

IN DECLINE
Switching to supply now, commercial printing overall has been declining during the last five years. It varies a bit depending on their specialty, but, across the board, most commercial printers’ revenues are down by more than 20 percent. Supplies also are down more than 20 percent.

There are a couple reasons for that. Some of them are obviously just short term with the economy, but there are some bigger issues at play as well. One is the emergence of electronic media. We have been talking about a paperless society for a long time, and now there are examples that this concept is catching on. There are some new Security Exchange Commission (SEC) rules out this year that allow broker-dealers to store documents digitally. This could hit a lot of commercial printers hard, especially those that specialize in financial documents. Some companies that specialize in digital storage are already booming from this rule.

There also are examples of shipping, medical and insurance companies that have switched to electronic media, and not only is the obvious advantage that they save money in terms of not buying paper products, but many of them claim that a more significant advantage is that they can handle information much more efficiently. They can search and store more efficiently, and companies like DHL have reported big savings based on the fact that they can engineer processes and access information faster, better and more cheaply.

This obviously is affecting commercial printers and is ultimately going to affect the shredding industry as well, as more medical and insurance companies move to electronic media.

IN SHREDS
You can’t talk about deink rates without addressing what’s happened in the shredding industry. Hopefully everyone remembers that when HIPAA (Health Insurance Portability and Accountability Act) regulations came out from 2001 to 2003 there was rapid growth in the shredding industry. A lot of new companies and recycling companies were getting into shredding.

In 2009, as part of the American Recovery and Revitalization Act, there are actually some new updates to HIPAA. One of them is that the covered entities have been expanded. Number two, they created local state’s attorney general enforcement and they substantially ramped up the fines, from $25,000 to $1.5 million. The original HIPAA spurred a lot of sales people in the shredding industry to reach out to companies that weren’t currently using shredding services, using the regulation as a sales tool for their shredding businesses. With the state’s attorneys general enforcement and fines ramped up so much, I think we are going to see that again.

IN THE FUTURE
I think there will be several significant issues that are going to affect the office waste and coated book segments of the recovered fiber industry in the next three to five years. The black liquor tax credit is a major issue, especially for a deink pulp mill. Right now, the integrated companies that need pulp have an incentive to run their own virgin pulp mills all out so that they can capture those tax credits. That’s going to continue to weaken the deink pulp supply until the black liquor tax credit either ends or is stopped.

Number two is the pulp prices. In South America they are using eucalyptus trees that can be harvested in seven years for pulping. That is a fraction of the time that a U.S. tree or a Canadian tree can be harvested in.
Number three, a lot of printers are switching more and more to what I call a composite paper, kind of a high brightness ground wood. We’re seeing the supply of the true coated book stock dropping because it is getting polluted with composite papers as well as with a lot of glues. Years ago, it was common for a bindery to be separate from the printer, but more and more, binderies are coming inhouse.

Number four, export activityis primarily an East and West coast phenomenon still. Mexico obviously buys a lot at the moment, but when you are in the middle third of the country, export is still really not a factor.

A final concern is the paperless companies. I do believe that is going to be something that will continue to evolve and become more common.

The author is president of Federal International’s recycling division based in Saint Louis. He can be reached at johndaniel@federalinternational.com.

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