Healthy Prospects: The 1988 Paper Roundtable

A cross section of paper industry representatives assembled in Chicago to hear positive news about their industry's health and to learn of continuing domestic and international opportunities.

By Robert J. Garino

Robert J. Garino is director of commodities for the Institute of Scrap Recycling Industries, Washington, D.C.

A record number of representatives from virtually every aspect of the paper industry--more than 225 integrated-paper-mill executives, paper and paperboard manufacturers, paper stock processors, domestic brokers, and waste paper exporters--participated in this year's multi-faceted Paper Roundtable. The event, hosted by the Paper Stock Institute (PSI) of the Institute of Scrap Recycling Industries (ISRI), was held July 19 in Chicago.

The unifying theme expressed by the speakers was one of continued optimism for the paper and paper stock industries; business activity at most levels remains healthy. PSI Chairman Richard Foohey, Great Eastern Packing and Paper Stock Corporation, East Weymouth, Massachusetts, said the nation's paper mills are running "flat out," with very strong mill bookings through the remainder of this year. In fact, continued Foohey, the paper industry has been going strong for the last two and one-half years, an almost unheard of duration of positive news for this industry.

Adding to the overall higher demand for paper and paperboard products has been a documented worldwide shortfall of virgin pulp supplies. As a result, prices for pulp are escalating--list prices, for example, have increased for 10 consecutive quarters--and both domestic and overseas fiber consumers are looking to increase their intake of secondary material.

Although the export market was experiencing a so-called summer lull at the time the roundtable convened, overseas demand for U.S. waste paper was on its way to setting an all-time record. For the first five months of this year, 2.2 million net tons (mnt) of waste paper were exported. At this rate, more than 5.3 mnt will leave the U.S., approximately 20 percent more than the record tonnage set just one year ago.

Nevertheless, roundtable speakers acknowledged certain problems within the paper stock industry--specifically, its role in dealing with municipal solid waste. Two speakers cited recycling as only a partial solution to the nation's municipal solid waste disposal problem.

ISRI President Richard E. Abrams, B. Abrams & Sons Inc., Harrisburg, Pennsylvania, addressed additional problems members of the paper industry face along with people involved in other areas of recycling. "Federal, state, and local regulations on underground fuel storage tanks affect all of us who operate truck fleets and maintain fueling facilities on premises," Abrams pointed out. "In addition, the way we dispose of solvents used in our maintenance operations is something about which we must all be concerned." He said that ReMA staff is staying abreast of all environmental regulations in efforts to help all ISRI members comply.

The paper and paper stock industry speakers examined the role of paper recycling in solid waste management, offered a paper stock roundup that focused on the domestic market, and analyzed export markets for waste paper in Europe, Latin America, and the Pacific Rim countries of China, South Korea, Taiwan, Japan, and the Philippines.

Paper and Municipal Solid Waste

Basil Snider, Jr., president and CEO, Garden State Paper Company, Inc., Richmond, Virginia, said his company's combined annual capacity of recycled old newspapers (ONP) totals 900,000 net tons (nt), making Garden State one of the largest U.S. ONP recyclers. The firm is the third largest U.S. newsprint producer.

Snider prefaced his remarks on solid waste management with an overview of the current U.S. paper recycling industry. He noted that, in 1987, 24.0 mnt of waste paper and paperboard products were collected for recycling, out of 84.0 mnt of new paper grades. Based on collections, Snider put the national recycling rate at about 29 percent. The two largest grades of recycled paper were old corrugated containers (OCC) and ONP

Of the 24.0 mnt collected in 1987, Snider reckoned that 19.6 mnt went back to the paper mills for recycling into new paper products. The remainder, 4.4 mnt, was exported.

Snider pointed out that, as impressive as the statistics may be, the U.S. cannot simply "recycle its way out of the solid waste dilemma. ... Recycling is not the solution. It is only a part of the solution." Snider looked at the keys to solving the solid waste problem:

determining which material in the solid waste stream can be recycled;

reducing the overall solid waste stream; and

disposing of nonrecyclable waste in carefully engineered landfills.

He then focused on two factors that he believed will affect the solution: the increasing end-use markets for recycled fiber; and the economics of using secondary fiber versus using virgin raw materials.

Snider noted that quality counts in products manufactured by paper mills using recycled paper. As consumers become more sophisticated, he said, increased quality standards may actually preclude the use of recycled fibers, hence limiting outlets for waste paper. In short, manufacturers cannot recycle garbage into acceptable paper products, observed Snider. Claims about European or Japanese firms extracting from municipal waste fiber that "is widely usable in new paper products are simply not true," he said.

Snider examined the economics of paper recycling: "One must ask whether the costs of collecting, processing, and moving waste paper to the mill, and then the cost of shipping finished product to the consumer, are competitive with [costs of] paper made from trees." Paper made from recycled materials is "not necessarily less costly to manufacture than products made from trees," Snider stated.

Although acknowledging an upper limit" to the use of waste paper, Snider did not say that the U.S. had reached that level. If recycled fiber is priced right, he observed, more manufacturers will use it. His personal guess was that a recycling rate in the mid-30- to 40-percent range is probably the "best we can accomplish on a national basis."

Snider suggested that, over time, government involvement in recycling will increase, making waste paper quality an even more critical factor. Unfortunately, according to Snider, as public involvement grows, sensitivity to the quality of reclaimed paper is apt to decrease. Snider called on recyclers and manufacturers to work together to educate rulemakers.

Recycled Fiber Taking Off

Atlanta's Stone Container Corporation is the "largest paper company in the brown fiber segment," according to Howard E. Ingram, division vice-president. The company has 12 paper and paperboard mills, all of which use recycled fiber. Ingram stated that Stone Container is annually using slightly more than 1 mnt of recycled fiber as part of their furnish (raw material), most of which is OCC.

Ingram examined the market for corrugated and noted at the outset that "recycled fiber is the fastest growing segment of the paper industry" because of the "explosion in the growth of demand from the kraft linerboard mills." He said this rapid growth has occurred because no greenfield linerboard mills have been built or announced since 1981, and because technological improvements at mills have resulted in greater use of recycled fiber, especially OCC.

As a consequence, kraft linerboard capacity has been stretched, resulting in a significant increase in demand for OCC. By 1990, Ingram foresees usage of over 2 1/2 mnt of OCC to manufacture kraft linerboard, a substantial increase over his current consumption.

To arrive at this projected demand figure, Ingram analyzed the domestic and export markets for corrugated. He noted that domestic collections of OCC have increased from between 9.4 percent and 10.3 percent in every year since 1982 with the exception of 1985 (a recession year). Annualizing first-quarter-1988 data, Ingram estimated corrugated collections at 12.15 mnt, more than 10 percent above 1987.

Regarding the components which make up OCC--kraft linerboard, corrugated medium, and recycled liner and medium--Ingram figured on a U.S. availability (after net exports) of some 24.89 mnt. Matching this figure against total collections of 11.18 mnt, the recovery rate last year was 44.9 percent. While, at first glance, there appears to be an adequate supply base of OCC, by further netting out what is lost in waste streams and waste not collected, Ingram said the practical availability of OCC in the U.S. is 19.89 million [net] tons." He believes that new sources of corrugated supply will be needed to meet kraft linerboard demand but, at the same time, corrugated is well placed in using the added supply generated by mandatory recycling programs. Echoing Snider, Ingram emphasized that paper recycling is "only a partial solution" to the problem of solid waste disposal in the U.S.

Europe--Contrasts and Similarities

Joe Merante, vice-president, export sales, Recycled Fibers Corporation, Newark, New Jersey, said the total waste paper tonnage shipped to Europe in 1987 was little changed compared with 1986. The two largest importing countries, Spain and Italy, reduced their combined intake by about 12 percent; however, their declines were partially offset by large relative increases posted by Portugal, West Germany, and Finland. Merante identified several reasons why he believes shipments to Europe are less than one-fourth the total tonnages exported to the Far East.

The first, he said, was one of adequate European supply. Quite simply, European mills have a regular supply of waste paper generated by manufacturers strategically located in Western Europe, Scandanavia, and the Eastern European nations.

The second reason was one of quality control; Merante cited "greater concern by European mills over the material purchased as a factor limiting total U.S. exports to Europe." According to Merante, the European market is evolving toward tighter grade specifications, which are becoming more difficult for U.S. packers to meet. This problem is already apparent in the Northeast," he observed.

Another difficulty is the fact that U.S. exporters are limited by fewer shipping points; as a consequence, exporters must compete with domestic, Canadian, and Far East mills.

Merante noted that the weaker U.S. dollar over the past year was a major reason for increased shipments of the high grades of waste paper to the Continent. The largest consumers of American high-grades continue to be in Holland, West Germany, and Northern France.

Merante reviewed the similarity between the European and American waste paper industries. At the base of both industries, he noted, is the packer, who collects, separates, and bales. The European market may be characterized as one that is in continual movement between countries, just as the U.S. market is one of continual interstate movement.

Another similarity is the fact that both Europe and the U.S. export waste paper. For example, in 1987, 97,000 metric tons (mt) of waste paper went from Europe to Taiwan alone. The Pacific Rim is attractive to Europe mainly as a result of competitive freight rates, ample supplies of waste paper, and the relatively high prices for American waste paper that allow Europeans to compete.

Merante summed up by saying that 1987 European demand for waste paper looked sound through the summer months and into the fall. With respect to the high-grades, actual demand will depend on the relative strength of the dollar. Merante believes that Spain and Portugal offer the greatest potential for increased usage of U.S. paper stock.

Latin America--Problems and Potential

The Latin American paper market--debts, inflation, and politics notwithstanding--is "thriving," according to Richard B. Garrett, U.S. Recycling Industries, Oakland, California. He noted two trends that characterize South and Central American waste paper imports from the U.S.: (1) South American countries tend to concentrate on importing OCC and double-lined kraft (DLK) grades in order to secure the necessary fiber strength for their packaging industries; and (2) Central America and the Caribbean islands look first at importing deinking grades and pulp substitutes for their tissue and printing/writing mills.

Exports of waste paper to Latin America constitute a 22 percent market share of total U.S. exports; however, as Garrett observed, of the more than 900,000 nt of paper exported south by the U.S., Mexico absorbed nearly 800,000 nt. Garrett discussed Mexico's difficult political atmosphere and the economic realities facing that country.

Garrett said Mexico has 61 paper mills with an installed capacity of some 3.7 mnt annually. Approximately 2.8 mnt of paper were produced in Mexico last year. Further, according to Garrett, the packaging industry accounted for 55 percent of the market, with printing/writing the next largest at 31 percent. The balance of production is in the tissue and specialty papers-approximately 24 percent.

Currently, Mexico's raw material imports of 518,000 nt of wood pulp and 780,000 nt of waste paper constitute 46 percent of the furnish required. The major grades being imported included kraft (OCC/DLK), 36 percent; ONP, 30 percent; pulp substitutes, 26 percent; deinking grades, 5 percent; and miscellaneous grades, 3 percent.

Garrett also discussed the export market for paper and paperboard and new developments in Mexico's paper industry. He emphasized the close financial links between the U.S. and Mexican economies: "A healthy U.S. economy means a better prospect for a Mexican economic recovery."

Asia--Bright Prospects

Procurement Manager Don Rogers, Allan Company, Baldwin Park, California, examined the major Pacific Rim countries importing paper stock from the U.S. Before looking at these key countries, Rogers discussed the shortage of available shipping containers and rising ocean freight costs. Even with certain problems associated with overseas markets, he said, "waste paper will still be a driving force in the ocean shipping business due to the fact that it is a year-round commodity"

Reviewing the export market by major grades, Rogers said he believes that "most export grades seemed to remain strong, with the exception of old newspaper." Although he was not sure why this particular market remained weak, Rogers suggested that the effects of mandatory recycling, a key industry strike, and high tipping fees (especially in the Eastern Seaboard states) have "voided any normal summer news shortages" that would have helped firm the market for ONP.

Rogers said "OCC seemed to remain stable" on the world export market. Because U.S. OCC is "the best fiber quality in the world," he said, overseas mills will continue to buy steadily. This fact was also noted by Garrett, who maintained that overseas markets eagerly seek OCC for its strength. Rogers believes that there is "no substitute for good OCC"--with the exception of DLK, which, according to Rogers, is "not usually an economic option."

Rogers stated that high grades of waste paper are governed by the pulp market and, as such, the "future looks very bright for them and pulp substitute shippers." He added that, based on the present buying of hardwood and softwood pulp, high-grade values are "probably on the low side."

Despite encouraging waste paper forecasts, Rogers cautioned that, with the changing balance of trade with Asia, fewer-goods are being shipped to the U.S. Rogers believes this will not only affect waste paper demand from the U.S., but will also aggravate the container availability requirements for China, South Korea, Taiwan, Japan, the

A cross section of paper industry representatives assembled in Chicago to hear positive news about their industry's health and to learn of continuing domestic and international opportunities.