May/June 2006
U.S. exports of recovered fiber have set a record FOR four consecutive years and are on track to do it again in 2006. China is driving the demand, but other trends are afloat as well.
By Steve Barlas
China has been drawing U.S. exports of recovered paper like a magnet, and the attraction will only get stronger, according to paper recycling experts like Pete Grogan, manager of market development for Weyer-haeuser Containerboard Packaging and Recycling (Federal Way, Wash.).
China’s upward trend isn’t new, of course. The Middle Kingdom has been steadily increasing its imports of U.S. scrap paper every year for the last decade. Back in 1996, it was only the fourth largest importer of U.S. recovered fiber, accounting for nearly 10 percent of all exports. By 2001, China had become the number-one buyer, with a 34 percent share of U.S. shipments, and it has not only held but expanded its preeminent position ever since. In 2005, its imports of all U.S. grades—mixed, OCC, ONP, mechanical pulp, deinking, and chemical pulp—totaled 7.7 million mt, for a 53 percent share of the record 14.6 million mt of U.S. scrap paper exports last year. Though some countries decreased their purchases of U.S. fiber in 2005, China more than made up for the lost tonnage, increasing its own imports 1.75 million mt.
China’s voracious demand for scrap paper has been the main reason why U.S. exports have set a record every year in the past decade except one (2001). Since 1996, U.S. shipments have grown 123 percent, from 6.5 million mt to 14.6 million mt in 2005. Though most years grew in single-digit percentages, three years posted double-digit leaps—2000 (32 percent), 2003 (23 percent), and 2005 (13 percent).
The solid growth in 2005 was good news after the meager 1.3 percent increase in 2004. So U.S. exports appear to be back on a healthy track. Based on January-February figures, which were up 13 percent, 2006 is heading for another year of double-digit growth and another record in total U.S. scrap paper shipments.
This year could also see China claim an even greater share, with its two-month total accounting for 56 percent of total U.S. shipments.
China’s demand for U.S. recovered fiber continues to rise for two main reasons, Grogan explains. First, it needs scrap paper to make packaging for the wide range of products that have made it “factory to the world.” Second, China—the world’s most populous country—now also needs paper for internal demand as it becomes the kind of vibrant consumer society that the United States was in the 1940s and 1950s. The growth of China’s consumer market is evident in the proliferation of paper-intensive U.S. franchises such as KFC and Pizza Hut and the publication of more newspapers and magazines, including Rolling Stone, whose Chinese edition debuted in February. (It was banned a month later for failing to obtain the correct government approvals.)
China’s appetite for scrap paper might also get a boost from another source: U.S. paper manufacturers that establish mills in China to supply that market and others. In April, for example, International Paper Co. and Shandong Sun Paper signed a 50-50 joint venture to open a coated board mill in Yanzhou City.
China must import so much scrap paper because, with only 4 percent of the world’s forests, it lacks the natural resources to produce its own. Also, unlike developed nations, China does not have the collection infrastructure or the quantity of internal scrap paper to meet its fiber needs. Japan, for instance, developed a successful paper recycling infrastructure during its rapid industrialization in the 1970s and 1980s. Today it fulfills most of its fiber needs with its own recovered material. In the past, Japan has even exported scrap paper to China. But unlike the United States, Japan has essentially maxed out its scrap exports, which means it won’t play a significant role in meeting the world’s growing need for recovered fiber, which Grogan estimates at 8 million mt of additional demand every year through 2015.
The Best of the Rest
Though China claims the spotlight on the U.S. scrap paper export stage, it isn’t the whole show. Canada and Mexico are also key players as the second and third largest buyers, respectively, of U.S. recovered fiber, and India is a promising star in the wings.
As recently as 2000, Canada was the top consumer of U.S. scrap paper, at 2.5 million mt. Since then, however, its imports have declined 11 percent, settling at 2.3 million mt in 2005—a distant second behind China. Compared with 2004, Canada’s 2005 imports saw a 7 percent decline, which was trumped by its 18 percent decrease in the first two months of 2006. So for now, at least, Canada’s demand for U.S. recovered fiber is undeniably on the way down.
Mexico, in contrast, is on the way up. Since 2000, its imports of U.S. recovered fiber have increased almost 22 percent to roughly 1.3 million mt in 2005, making it the third largest consumer. Mexico’s import total last year was up 15 percent compared with 2004, and its upward trend has continued into 2006, with its January-February purchases up about 37 percent.
India also boosted its imports of U.S. scrap paper significantly last year, rising from 465,000 mt in 2004 to 620,000 mt in 2005—a 33 percent jump—and it has started 2006 at another double-digit pace, up more than 42 percent in the first two months. Grogan says India is becoming the same kind of consumer society as China, albeit smaller. “There are 555 million zippies in India,” he says. “That’s the Indian equivalent of yuppies. They are called Generation Z. They want the good life.”
In contrast to China’s insatiable consumption of U.S. scrap paper, most of the other Rising Tigers—the Far Eastern countries whose economies have grown markedly in the past decade—are doing nothing more these days than foraging. Korea, Taiwan, Indonesia, and Japan, all of which were significant export destinations
in 2000, have scaled back their purchased tonnage. Korea has slid from 1.3 million mt in 2000 to 860,000 mt in 2005. Taiwan is down from 567,000 mt to 336,000 mt, while Indonesia has cut back from 566,000 mt to 291,000 mt. And Japan, in the steepest slide of all, has gone from 247,000 mt to 76,000 mt, a decline of 69 percent.
Aside from China, the United Kingdom has shown the biggest increase, percentage-wise, in its purchases of U.S. recovered paper in the 2000 to 2005 period, growing 80 percent—from 46,000 mt in 2000 to 83,000 mt last year. That said, the United Kingdom’s momentum evaporated this January-February, when its imports were an almost invisible 4,000 mt, down 94 percent from its comparable 2005 figure.
Assessing the Grades
Like the countries that buy U.S. scrap paper, the six main grades of exported fiber have their own unique characteristics and stories, though they can be grouped into two general categories: Mixed, OCC, ONP, and mechanical pulp all saw their export totals increase respectably from 2000 to 2005 as well as from 2004 to 2005. Conversely, chemical pulp and deinking declined in the 2000 to 2005 period but showed signs of pulling out of their slumps by posting gains—5 percent and 41 percent, respectively—in 2005 compared with 2004.
Mixed and OCC: Mixed and OCC are, hands-down, the most exported grades of U.S. recovered fiber. In 2005, mixed maintained its position in the top spot at 5.2 million mt. OCC remained in second place at 4.3 million mt.
As recently as 2000, exports of mixed and OCC were at the nearly identical levels of 2.9 million mt and 2.8 million mt, respectively. Since 2000, both grades have enjoyed double-digit growth. While OCC grew an impressive 54 percent, mixed rocketed upward almost 81 percent. As a result, mixed has expanded its share of overall U.S. scrap paper exports from 28 percent in 2000 to about 36 percent last year, while OCC’s share of the total has remained virtually the same at 29 percent.
Mixed paper’s rise can be attributed, in part, to China’s escalating demand. Many mills, especially those in China, have been buying mixed paper to offset their purchases of higher-end grades like ONP and OCC. The value of mixed paper in the market has continued to grow to the point that more consumers are starting to rely on it as a standalone raw material in place of higher grades.
Not surprisingly, China is the largest buyer of U.S. mixed paper, and its share of total mixed exports has grown substantially. In 2000, China imported 1 million mt of U.S. mixed paper, or 35 percent of the total, while in 2005 it bought 3.5 million mt for a 68 percent share.
Elsewhere in the mixed category, Canada and the Asian Tigers—except for Korea—have decreased their imports. Since 2000, Canada’s purchases of mixed have declined 23 percent, from 807,000 mt to 624,000 mt last year. Mexico’s demand for mixed also has decreased since 2000, slipping 52 percent, from 180,000 mt to 86,000 mt last year. (On the plus side, Mexico is showing signs of resurrection, with its January-February 2006 demand increasing 360 percent.)
Korea, on the other hand, appears to be flexing its tail, increasing its mixed imports 17 percent—from 264,000 mt in 2000 to 310,000 mt in 2005—and its upward trend has continued into 2006 with a 43 percent gain in its two-month figures. India also has been showing greater interest in U.S. mixed paper, ratcheting up its imports 64 percent, from 127,000 mt in 2000 to 208,000 mt in 2005.
A similar pattern is evident in the OCC category, with two exceptions. China has show the biggest gain, increasing its imports of U.S. OCC almost fivefold, from 495,000 mt in 2000 to 2.4 million mt last year. That total gave China a 55 percent share of all U.S. OCC exports in 2005.
In contrast, Canada, Japan, and Korea have seen their imports of U.S. OCC dwindle. Mexico is down as well in the OCC category—substantially, as a matter of fact—from its peak of 516,000 mt in 2002 to 154,000 mt in 2005, which was even short of its 2000 total of 265,000 mt.
Notably, Thailand has been a strong, consistent player in the U.S. OCC market, with its 242,000 mt total in 2005 making it the fourth largest buyer behind China, Korea, and Canada.
ONP: The ONP export picture has some subtleties to it. Though China has increased its imports almost 200 percent, from 284,000 mt in 2000 to 842,000 mt last year, it isn’t the number-one export market for this grade. That distinction goes to Canada, which imported 905,000 mt in 2005—a 40 percent increase since 2000 and 5 percent more than its 2004 purchases. ONP, in fact, is one of only two categories of U.S. scrap paper in which Canada has increased its imports since 2000.
Of note, Mexico has come on strong in the ONP niche, nailing down third place by importing 386,000 mt in 2005. Though China posted the biggest ONP tonnage increase in the 2000 to 2005 period, Mexico had the largest percentage gain at 360 percent, albeit from a smaller base.
Mechanical Pulp: The overall trends hold up in the mechanical pulp category, which itself has retained virtually
the same share—about 8 percent—of all U.S. scrap paper exports since 2000. China is the big story once again. From a base of 40,000 mt in 2000, it has boosted its imports of U.S. mechanical pulp by a factor of 15, reaching 609,000 mt in 2005 and claiming a 50 percent share of this grade’s exports.
Canada is the only other significant buyer in the mechanical pulp category, at 344,000 mt, though its imports have declined 26 percent since its 2000 total of 467,000 mt. While most Asian consumers have decreased their purchases of U.S. mechanical pulp, India and Mexico have increased theirs to 63,000 mt and 54,000 mt, respectively. The only other interesting story here is Switzerland. It went from 0 to 50,000 mt in the 2000 to 2005 period.
Deinking and Chemical Pulp: Of the two anemic export categories—deinking and chemical pulp—deinking has fallen the most precipitously, sliding 33 percent, from just over 1 million mt in 2000 to 711,000 mt in 2005. That compares to a 12 percent reversal for chemical pulp in the same period, from 873,000 mt to 765,000 mt.
In the past year, however, deinking has shown more signs of stirring. While chemical pulp exports grew
5 percent year-on-year in 2005, deinking’s exports jumped 41 percent, and its January-February 2006 growth, at 54 percent, was even stronger. Mexico is the leader in the deinking sector, increasing its imports 79 percent—from 135,000 mt in 2000 to 242,000 mt in 2005—for a 34 percent share of the market. Though China has cranked up its imports of U.S. deinking some 266 percent since 2000, its 106,000 mt total in 2005 was less than half Mexico’s total and accounted for only a 15 percent share of the niche.
Aside from China, other Asian countries have generally dropped through the floor regarding deinking. Korea, Thailand, Taiwan, Indonesia, Japan, and India all fell significantly, though India registered a good 2004-to-2005 gain.
Notably, Mexico, not China, also claims the lead in the U.S. chemical pulp export market. Mexico imported 365,000 mt in 2005 for a 48 percent share of the market. That said, Mexico’s total hasn’t grown much since 2000, when it was 349,000 mt.
Though China has a comparatively low share of this grade, at 27 percent, its growth has been strong in the past five years, stepping up from 127,000 mt to 203,000 mt.
Aside from India, whose imports of U.S. chemical pulp have increased 46 percent since 2000, to 38,000 mt last year, all other major buying countries have sharply curtailed their imports of this grade. Venezuela provides one dramatic example: It slashed its imports of this grade from 47,000 mt in 2000 to 2,000 mt in 2005.
For the ailing U.S. deinking and chemical pulp export markets, the question is, will China increase its purchases and, in the process, breathe new life into them? Based on their January-February 2006 results—up 54 percent for deinking and 34 percent for chemical pulp—the signs are looking up. •
Steve Barlas is a writer based in Arlington, Va.
U.S. exports of recovered fiber have set a record FOR four consecutive years and are on track to do it again in 2006. China is driving the demand, but other trends are afloat as well.