Submitted: The Two Sides Team June 28, 2014
As recovery rates approach the ceiling, near-future global fiber shortages could develop
This article by Ken Patrick originally appeared in the March/April issue of Paper360°.
With paper recovery rates in North America creeping up near 70 percent, Europe approaching 75 percent, and Japan nudging 80 percent, there is growing concern that the global paper industry may soon bump against the ceiling of what can be recovered. With recovered fiber demand still rising, periodic shortfalls could be looming on the horizon. The U.S., one of the world’s largest exporters of recovered fiber with nearly half of its annual recovered paper stream (40 percent-plus) currently being exported, and some 70 percent of that going to one country—China, is especially vulnerable to global fiber dynamics where demand is growing faster than supply.
The theoretical fiber recovery ceiling differs by country and region, depending on a series of conditions. In the U.S. there is general consensus that the ceiling is, on the average, around 80 percent, though specific grades can vary above or below that. Old corrugated container (OCC) recovery in the U.S., for example, has already exceeded 90 percent, according to some figures. In Japan, with its large urban populations, some see the overall ceiling at 90 percent-plus, while the European ceiling is generally believed to be around 85 percent. The limits to paper recovery are related to quality and collection costs.
Concerns about a recovered fiber shortage are amplified by the fact that more than half of the world’s paper and board is now being made with recycled fiber. In the U.S., that figure is near 45 percent. At the same time, the growth rate of global paper recovery has slowed in recent years as major fiber recovering countries push up nearer their practical limits. Currently, global paper recovery (according to Pöyry data) is at 223 million metric tons (collection rate of 56 percent), and by 2025 is projected to rise only five or six more percentage points to 308 million metric tons (61-62 percent collection rate), reflecting a slowdown in the rate of recovery.
Although these figures all point to a nervous tightening of recovered fiber supply in the face of increasing demand, the situation is more complex than that. Especially complicating the situation is the series of stubborn, off-and-on economic slowdowns that continue to plague many countries around the world. Also a factor that has to be considered in the recycling “merry-go-round” is the fact that recycling does wear fiber out. The life span of pulp fiber is typically about five recycles, then fines begin to increase and quality (drainage, strength, yield, etc.) declines. To help unravel these complexities and get a clearer view of the recycled fiber dilemma, Paper360° recently met with three experts in the recovered fiber arena: Kathy Kneer, Principal, Pöyry Management Consulting North America; Bill Moore, President, Moore & Associates; and Johnny Gold, Sr. VP, Recycled Fibers Division, Newark Recovery and Recycling, part of Newark Recycled Paperboard Solutions. and also a member of the Recycled Paperboard Technical Association (RPTA). Their views and perspectives are included in the following discussion.
All three experts agree that currently, at least, there are some recovered fiber availability issues building. “But what’s adding some uncertainty is the spotty global recession that has dampened demand and slowed growth in so many regions, including Asia and Latin America,” Kneer says. “Right now demand for recycled fiber is less and the pressure isn’t as great because manufacturing has slowed, consumption is down, etc. But longer term, we think there will be lingering issues with availability and/or price. Eventually, do mills in the U.S. just start substituting virgin again?”
Gold emphasizes that “we haven’t run out of fiber yet, but we’ve never had these kinds of recovery levels in the past. The recovery levels are higher, not necessarily because we are recovering that much more fiber, but because there is less paper out there to recover. The recovery percentage has gone up but the amount of tonnage in some cases is actually less. There are certain grades that will always be there, such as packaging boards, but printing and writing papers are less and less, for obvious reasons.
“I do get a little concerned about the 90 percent-plus recovery of OCC in the U.S.,” Gold continues. “In the future, if you need more, you might have to mine the landfills and/or go to non-traditional places. Already, we’re beginning to see some of that. But I don’t really get all that nervous about it because, you know what, we always have virgin. If recycled becomes more costly than virgin in a grade sector like containerboard, then producers obviously will swing to virgin, where we currently do have excess capacity—and globally also. But I don’t see that happening, really. I think the real problem we have is that the quality of recovered fiber has gone down.”
Moore points out that “the U.S. 40 percent recovered fiber export rate has grown dramatically considering that the country was exporting only around 10 percent some 25 years ago. We’re still using 60 percent of what we recover here in our domestic mills.”
THE CHINA FACTOR
There are numerous market drivers behind the increased collection and use of recovered fiber, but as Kneer explains, three in particular stand out. First is the seemingly insatiable appetite for containerboard in China, which has led to further capacity expansions in that country. Second is the continuing environmental push for recycling, especially in the West, and the increased emphasis on diverting waste from landfill in the public sector, which has helped corral more recovered paper into the market. Third is the pronounced and ongoing decline of the graphics paper industry, removing very high tonnages from the global recycling stream in recent years.
There are other drivers, of course, such as legislation, cost of collection, pulp prices, paper demand, transportation, quality deterioration, and the growing share of tissue in the market, just to name a few. But of all the drivers, probably the greatest impact is coming from China, a resource poor country where the vast majority of new mills are focused on importing recovered paper. Kneer points out that China’s consumption of papermaking fiber was close to 104 million metric tons in 2011 and is forecast to grow rapidly, reaching 164 million metric tons by 2025. Of this volume, approximately 25 percent is imported recovered paper (the rest being domestic recovered paper, wood pulp, and non-wood pulp).
Moore, as a whole, sees China continuing to import more recycled fiber, primarily for board products, “but the growth rate will slow,” he believes. “Right now they have overcapacity in the board grades, and that’s helping hold the recovered paper market in check.” But China doesn’t have a domestic softwood source, he adds, so they will have to import more recovered OCC.
“The Chinese containerboard industry is definitely tied to OCC and, to a lesser degree, to mixed papers—and it will continue to be so,” Moore continues. “At the top of the cycle they use some unbleached Kraft pulp, and that’s becoming more of a traded commodity—still very small, and mostly used for high-strength outer layers, special products, triple wall, etc.” Moore notes that China is increasing its domestic recovery rates—more of their boxes will stay at home as their domestic markets grow in the coming years.
“On the tissue side, China has been virgin fiber oriented for a number of years. From a cost standpoint, why ship recovered office papers out of the West and lose 40 percent yield, when China has ready access to globally traded short fiber pulp?” Moore asks.
“With P&W papers, a few groups have tried using a little recycled paper here and there, but it’s just not going to happen in China—even less so than in the West. In newsprint, it’s really not happening in China either. Newsprint is 100 percent recycled there, but China has curtailed production of the grade, just as in the rest of the world. They haven’t built a new newsprint machine in China in five to seven years,” Moore notes.
“Overall, when you look at China’s official recovery numbers, you have to ask why they don’t do a better job. But if you go to their landfills and incinerators, you won’t see much if any OCC as you do here in the states. But that’s because the boxes are going out of the country; the price of fiber is high, and they’re energized to recover as much as possible,” Moore emphasizes.
According to Gold, as the Chinese economy grows, Chinese workers will want and get higher pay. “As their standard of living improves and Chinese have more spending money in their pockets, they definitely will buy more goods and pump more paper-based packaging into the domestic market. Their recovery base will swell and their recovered paper rate will increase over time.”
Kneer agrees. “We do think that China’s recovery rate, especially with OCC, in reality is much higher than 40 percent—more like 60 percent—considering the amount of boxes that go out with exported goods. None of this fiber outflow is available for them to recover, so it’s not fair to use containerboard production as the base in determining recovery rates. Certainly, they have good recovery rates in China because they see value in reuse. However, demand in China will continue to grow and place more stress on the entire global system.”
In regard to the emergence of China’s domestic markets, Gold sees the possible development of a new, reverse crisis. “As China begins to absorb more into its domestic markets, and thus begins to recover more, they will take less and less from us. As that happens, we won’t have the paper mills here to take it all. A surplus situation could build, tending to drive prices down as well as overall recovery rates. In the future, the recycled fiber business in this country could suffer and decline as a result.”
QUALITY IN A HAND BASKET
Kneer says that the movement toward sustainability has increased in most regions, and certainly has increased here in the U.S. “As landfill costs have gone up, municipalities have looked to recycling, mainly implementing single stream systems, which does increase contamination levels. This is becoming a bit of an issue.”
Gold is especially emphatic about the continuing decline of recovered paper quality. “Some of the formats we’re recycling in now, such as single stream, are designed to make collections easier, but they have definitely undermined the quality. Fiber we get out of municipalities today just doesn’t meet the specifications of most mills, with its high levels of out-throws and contaminants. By mixing up so many grades of paper and board, we’re creating a sorting nightmare.
“At Newark, we’ve seen the quality collapse first hand,” Gold continues. “We handle quite a bit of residential mixed paper in our own corporate mills. Once, one of our mills taking in 550 tons a day of residential mixed paper was removing close to 70 tons a day out of the trashing systems as cans, glass, plastic, etc. We were paying for that 70 tons, and then paying to get rid of it. OCC isn’t bad, but all of the other grades are terrible. There’s no doubt that the quality of today’s recycled paper—residential mixed paper—has gone in the toilet,” Gold concludes.
Moore says that he prefers to look at the North American fiber situation going forward from a grade-by-grade standpoint, “and where I think we will be in terms of balance in fiber, and where it’s all going to come from. On the tissue side, I think we have reached the global and U.S. maximum recycled fiber level, and probably will begin to decline. There’s a distinct reason for that— we’re making less P&W papers, and that’s the traditional source of recycled fiber for tissue, especially away-from-home grades.
“As the markets have shifted, use of P&W papers in tissue has become progressively uneconomical,” says Moore. “In the not too distant future, the world’s going to be awash in short fiber virgin pulp, chasing P&W paper demand that’s just not going to be there. So there’s going to be plenty of bleached tropical hardwood pulp available for tissue.”
On the P&W paper side, Moore says the penetration has never been more than 10-15 percent recycled fiber. “The economics have never favored it. It’s really a specialty thing. And I think, going forward, it will remain so, with very moderate recycled fiber rates. Recycled fiber use in P&W papers is almost uneconomical, but it does occur.”
“On the newsprint and mechanical papers (both coated and uncoated) side,” Moore continues, “it also has become somewhat uneconomical to use old newspapers (ONP). The cost advantage with these grades today is clearly to TMP and the other mechanical pulps. With newsprint, capacity shutdowns have been biased toward recycled because ONP supply is diminished and also because the quality has diminished so much that it has become uneconomical. What’s left of newsprint is being produced more and more with virgin fiber. In North America, we have retreated from a peak of about 45 percent recycled fiber content to around 35 percent today. And even though the fiber quality is poor, nobody complains because the market’s good and there’s not enough good ONP around.
“The recycled boxboard grades are 100 percent recycled fiber content—and they will continue to be,” Moore points out. “Recovered fiber is still an economical furnish to make shoe and cereal box paperboard and many other unbleached, moderate quality products. That’s going to continue. The high end pharmaceutical, cigarette, and specialty packaging is going to be bleached virgin paperboard.”
The global containerboard sector is a massive user of recycled fiber. “Globally,” according to Moore, “we’re probably at 55 percent recycled fiber, and in the states we’re around 40 percent – 45 percent. And that’s been stable. We went way up over the past 30 years and now are at a stability point. Like tissue, I believe we are going to see a little bit of shift back to virgin fiber in the states, particularly in the Southeast where we have good Kraft pulping systems and grow an abundance of well managed trees. In the rest of the world, we will start to see a slower market growth in OCC for containerboard, just because pricing at the top half of the cycle will become less competitive with virgin.”
Looking again at the ceiling in the U.S., Kneer says that going forward, “in urban areas, collection rates could rise above 80 percent (rough average for all grades) because population density generally leads to higher collection opportunities, at lower cost. However, collection opportunities are lower and are generally higher cost.
“Although collection rates can increase above 80 percent for some grades, other grades can’t be effectively recovered,” says Kneer. “Tissue grades and some specialty grades, such as cigarette paper, or even food wraps that are contaminated by oil or grease, are examples of papers not available to the collection stream. Overall, there’s probably 20 percent that we will never be able to recover. It depends on what you are using as a base.”