Mixed Paper—From "Not" to "Hot"

Like the fabled ugly duckling, mixed paper has been transformed from a recycling byproduct to one of the hottest commodities in the recovered-fiber market. 

By Robert L. Reid

Mixed paper has undergone a remarkable change in recent years. In a recycling version of the ugly duckling that turned into a beautiful swan, this recovered-fiber grade has turned from a low-value byproduct—derisively called “floor sweepings” by some—into one of the hottest commodities in scrap paper, especially for the export market. 
Indeed, beginning in 2000, mixed paper replaced OCC as the most exported grade of U.S. recycled fiber (see Table 1 below). Mixed paper also supplanted OCC as the United States’ largest exported grade to China for six of the past seven years, beginning in 1997 (see Table 2 on page 76). Chinese demand for mixed paper has been so great, in fact, that in 2000 and 2001 it purchased twice as much mixed paper from the United States as OCC, falling just short of doing the same for a third straight year in 2002, according to U.S. trade data.

China’s overall purchases of U.S. mixed paper have more than doubled since 2000 and are up a whopping 10,345 percent since 1994. Other countries have also been increasing their purchases of U.S. mixed paper in recent years (see Table 3 on page 76), including Mexico, up about 28 percent since 2001; Canada, up 50 percent; South
Korea, up around 69 percent; and India, up 75 percent. Of those markets, only China and India have been rising consistently while demand from Canada, South Korea, and Mexico has been more volatile over that same period. Canada and Mexico, in fact, purchased more U.S. mixed paper in the mid-1990s than last year.

Overall, U.S. exports of mixed paper have increased some 227 percent since 1994 compared with growth in OCC exports of 30 percent. Moreover, OCC has fallen from about 44 percent of total U.S. recovered fiber exports in 1994 to 32 percent last year, while mixed paper has risen from around 19 percent of the total in 1994 to 33 percent in 2003.

Prices for mixed paper have increased along with demand, rising from roughly 20 percent of the value of OCC in the early 1990s to an average of about 55 percent of OCC’s value for the last three years and even 60 percent more recently, notes industry consultant Bill Moore of Moore & Associates (Atlanta). 

Moreover, Moore knows of at least one West Coast mill that has paid as much as 90 percent of the value of OCC to get a custom-made, especially clean grade of mixed paper for its furnish. The mill’s suppliers felt they could sell all their mixed paper “as is” to the export market, Moore explains, so they didn’t want to make a special grade for a domestic customer unless they received a premium price.

Overseas Opportunities

Though mixed paper is generally recovered at a much lower rate than other grades—about 30 percent compared with more than 70 percent for OCC and ONP—the recent price jumps have made the commodity far more attractive, leading many processors to collect mixed paper for the first time, notes Moore. 

Paper processor Tri-R Systems Corp. (Denver), for instance, says prices in its region have doubled or tripled in the past year, prompting the firm to invest in a new sorting facility to enable it to handle more mixed paper, says David Powelson, president.

“Mixed paper has never been a priority for us” because of its low value and irregular markets, he explains. But two factors—the strong export demand and the growth of single-stream residential collections, which generate large volumes of mixed paper—mean that “it now makes real economic sense to collect items such as junkmail, magazines, and just about anything that can go into mixed paper,” Powelson says.

Tri-R’s new facility, which will cost $3 million to $5 million, will enable the company to handle residential and commercial single-stream material for the first time, Powelson says. Plus, the new facility should make it easier for Tri-R to pursue residential paper from the city of Denver, which is in the process of switching to single-stream collection, he notes. 

Eventually, Tri-R’s new sorting facility should boost mixed paper’s share of the firm’s collections from the current level of less than 3 percent to 25 to 30 percent, Powelson says. In turn, Tri-R expects to export more of its overall tonnage—from about 5 percent now to 15 to 20 percent, with mixed paper a leading factor in that increase, he predicts.

The booming export demand for mixed paper is also the reason why Sutta Co. (Oakland, Calif.) is investing more than $1 million to relocate one of its facilities from Modesto to Stockton, Calif., where it will have access to more land and greater sources of mixed paper, notes Steve Sutta, president. 

Five or six years ago, he says, mixed paper was only a byproduct, “something you wanted to try to avoid,” whereas today it is worth pursuing. “Now we’re not afraid to actively collect it and figure out ways to encourage our suppliers to provide it as part of their material stream.”

Already, the company’s mixed-paper tonnage is growing. At one of its five facilities, the volume of mixed paper grew from “a couple hundred tons a month” five years ago to 500 to 600 tons a month now, Sutta says. When the new Stockton facility is ready, that volume should increase even more. Unlike Tri-R, however, Sutta Co. won’t be recycling mixed paper from single-stream or even commingled residential collections because both sources generate too much contamination, Sutta believes. Instead, the company concentrates on mixed paper from large commercial and industrial generators, with previously untapped sources including art papers in deep colors or carbon-containing papers. 

Given its West Coast location, Sutta naturally exports scrap paper. While other grades such as OCC and ONP are divided between domestic and foreign markets, the company has been exporting every pound of mixed paper for about the past five years, with China the leading buyer, Sutta says. Looking ahead, he feels comfortable redirecting his business toward collecting more mixed paper. As he explains, China’s use of paper sorting as “social policy” to help employ its vast population makes him confident that the current markets will remain strong.

Given their low labor costs, Chinese buyers can easily sort through a mixed paper pack, recovering the individual grades of OCC, ONP, ledger, and other higher-value fiber. In that way, they acquire these higher grades at a discount compared with buying them outright, explains David Clapp, senior economist at Resource Information Systems Inc. (RISI) (Bedford, Mass.). Likewise, Chinese mills can use U.S. mixed paper directly in containerboard and boxboard production, adds Gregg Rudder, executive editor of Pulp & Paper Week (San Francisco). 

Overall, the Chinese use hand-sorting on about half of the mixed paper they buy, estimates Bill Moore. For the other half, he says, “they use state-of-the-art stock-preparation systems that are designed to be used with higher levels of contamination and also different fiber lengths.” Thus, Moore concludes, “cheap labor is part of the answer [that explains China’s appetite for mixed paper], but it’s not the total answer.” 

Domestic Shipping

Though more than 40 percent of U.S. mixed paper was exported last year, the majority of this material remained at home. Here, as in China, a combination of technology and human sorting can help the grade find better markets. For instance, City Carton Recycling (Iowa City, Iowa) has seen its volume of mixed paper increase from about 50 to 100 tons a month a decade ago to around 800 tons a month today, thanks largely to increased domestic demand and an influx of mixed paper from its single-stream facility in Cedar Rapids, notes Andy Ockenfels, vice president of operations.

“Historically, we haven’t gone out and pursued mixed paper,” he says. “It was always a byproduct of cleaning up our corrugated.” But after launching its single-stream line, City Carton began generating “a pretty significant amount of mixed paper every month, and in doing so we had to find a market for that material.” City Carton did just that—it found a good domestic market in a number of U.S. mills throughout the Midwest that want to use more mixed paper in their medium lines—especially as the cost of baled OCC has been rising while mixed paper remains relatively less expensive, Ockenfels says.

Though City Carton doesn’t aggressively seek mixed paper, the material has become one of its main commodities and will likely increase as the volume of single-stream residential material grows, he predicts. While labor costs in the United States are naturally higher than in China, City Carton has found, even with mechanical separation, that adding personnel to its sorting lines remains the best way to ensure quality end products from its commingled material, Ockenfels says.

At Far West Fibers (Portland, Ore.), mixed paper is also growing in importance for its domestic consumers, notes Jeff Murray, vice president of business development. While the material that Far West receives is definitely a mixed paper—largely from Oregon communities with a modified form of single stream that excludes glass—the product Far West ships is less clearly definable. That’s because the company produces custom blends of mixed paper for specific domestic and international markets.

Using sorting technology and additional hand sorting when necessary, Far West produces mill-specific products that defy easy categorization. A local newsprint mill, for instance, might want material with no chipboard or other brown fiber and thus will take a “sorted mixed with news,” Murray says. A different mill might accept material with brown bags, small pieces of cardboard, chipboard, and other types of brown fiber. Historically, both of those packs might have been considered mixed paper, he explains, but “what is ‘mixed paper’ to one market is a specific grade to another market now.” 

Though Bill Moore also sees customized mixed packs as an important trend for the grade, not everyone is as enthusiastic. Steve Sutta, for instance, says his firm tried to make some small lots of specialty grades for the export market but found the effort “difficult if not impossible.” If you agree to make a specialty grade and are even a little bit off, he notes, “one’s apt to get claimed pretty rapidly.”

Local Consumption

On the mill side, RISI data show an increase in domestic consumption of mixed paper. Specifically, U.S. board mills consumed 4.6 million mt of mixed paper last year, up from 4.39 million mt in 2002 and 4.35 million mt in 2001 (though below the 4.9 million mt and 5.07 million mt consumed in 1998 and 1999, respectively). The current upward trend in domestic consumption is expected to continue through 2006, when U.S. board mills should again consume roughly 5 million mt of mixed paper, RISI data predict.

At the uncoated paperboard mills of The Newark Group (Cranford, N.J.), “mixed paper has always provided a large percentage of our needs ... and it’s a grade that continues to grow,” says Richard Poppe, senior vice president. The Newark Group’s mills use about 10 to 15 percent more mixed paper today than they did a decade ago, with the pace of that growth accelerating. Poppe expects the company’s mills to increase their use of mixed paper another 10 percent within the next five years. 

At one Newark Group mill in the Midwest, the decision by nearby communities to expand their curbside collection programs encouraged the facility to put in additional cleaning and screening equipment to use more of this loose, residential mixed paper, Poppe says. As a result, the mill has “reduced significantly” the amount of baled, densified ONP it had been consuming—at a savings of $10 to $30 a ton, Poppe says, adding that most other Newark mills use mixed paper to help reduce their reliance on OCC.

Dave Kosboth, general manager for the recycling division of Pratt Industries U.S.A. (Conyers, Ga.), says his company’s two mills use “significantly more” mixed paper than similar linerboard and medium facilities in the United States. Designed from the start to use large volumes of mixed paper, Pratt’s mills in Conyers and Staten Island, N.Y., feature high-consistency batch pulpers that break down the already-short fibers in mixed paper without making them any shorter, Kosboth says. 

These pulpers break down the paper into a slurry with a much more gentle action than that of a metal blade, which “tends to be more detrimental to fiber length,” he notes. The Pratt system can be compared to “a washing machine agitation” versus the blender-like traditional pulper, enabling Pratt’s mills to use a shorter fiber than similar facilities, Kosboth explains.

As a result, the Conyers and Staten Island mills have a good, steady supply of fiber and don’t have to chase after the more-competitive and higher-priced OCC. Though prices for mixed paper have advanced recently, the material still gives Pratt a competitive advantage because OCC is even more expensive and in tighter supply, Kosboth asserts. In addition to The Newark Group and Pratt Industries, other domestic mills that are increasing their use of mixed paper include Weyerhaeuser Co.’s linerboard and corrugated medium mill in Cedar Rapids, Iowa, as well as its Vali-ant, Okla., facility, industry sources say.

A Mixed Future?

The current booming market for mixed paper—especially in export—is expected to continue for at least the next several years, most observers agree. Chinese purchases of U.S. mixed paper, for instance, hit a record 256,267 mt last December. But even if the volumes don’t drop off, there are a few cautionary points to consider in this ugly duckling’s success story. 

For instance, some industry watchers are curious about what sort of finished-product quality issues mills must overcome when using more mixed paper to make their linerboard and medium. Then there’s the charge that U.S. fiber quality is deteriorating because packers believe they can ship everything to China without much effort. Exporters like Steve Sutta would disagree, noting that the Chinese are strict about quality. But an overall decline in quality is seen as a growing problem for shippers to regions other than Asia, notes James Maher III of Morgan Price & Co. Inc. (Miami), which sends paper primarily to Latin America where the generally older paper machines in that region need an especially clean fiber. 

Chinese demand has also produced an extremely tight market for mixed paper supplies, reports Johnny Gold, senior vice president for The Newark Group’s recycled fibers division. This is especially clear when factors like a bad New England winter reduce residential collections and force The Newark Group to source material outside of its contracted supplies, Gold says. He also worries somewhat about those contracted accounts, wondering if communities might someday forsake the local jobs created by domestic recycling in favor of the higher prices offered from overseas buyers.

RISI’s David Clapp also cautions that volatility in prices for mixed paper could, in the long run, reduce domestic demand for secondary fiber. Domestic mills that previously had seemed immune to the impact of export pricing have lately been forced to readjust their quarterly earnings reports due to changes in recovered paper pricing, he notes. These firms “want stability in their raw material, and they simply aren’t seeing that with a lot of recovered paper grades,” which is beginning to “make them rethink their strategy of adding recycled base capacity going forward,” Clapp says.

The problem for processors, then, is figuring out how to nurture the ugly duckling without also killing the golden goose ... or swan. •

Robert L. Reid is managing editor of Scrap.