July/August 2020
By Emilie Shumway
Recycled fiber pulp is a new and growing market for recyclers looking to sell their mixed paper and old corrugated cardboard, but its future still depends largely on China.
Every week, haulers working for Vangel, a commercial paper recycler based in Baltimore, collect old cardboard, newspapers, and especially office paper from high-rises and other multi-tenant buildings downtown. The recycler has barely moved a shipment of the last of these—mixed office paper—since June 2017, says Valerie Androutsopoulos, principal at Vangel. The demand has simply been too low.
This story is all too familiar to paper recyclers across the United States, many of whom have had to warehouse or even reluctantly landfill mixed paper grades in the wake of China’s import restrictions on recovered paper, which began in 2017. But China’s policy shift didn’t suddenly negate its need for fiber, says Bill Moore of paper recycling consulting firm Moore & Associates (Atlanta). “If Chinese mills can’t bring in recovered paper, they have to get that fiber somehow,” Moore says. “One way to do that is to buy unbleached recycled fiber market pulp.”
The grade Moore is referring to is a beacon of hope for paper recyclers: a product that came on the market in 2017 in direct response to China’s import restrictions. It has been the goal of some Chinese paper companies’ new in-vestments in North American mills over the past year and a half, and of their continuing probes of both shuttered and currently operating mills. The emergence of recycled fiber pulp is good news for paper recyclers, says Hannah Zhao, senior economist on recovered paper at Fastmarkets RISI (Burlington, Mass.). However, the grade’s novelty and producers’ uncertainty about future Chinese policy moves mean paper recyclers are not yet ready to count this market in their long-term plans.
The Fiber Gap
Mills produce recycled fiber market pulp from collected, sorted recovered paper. They clean it with state-of-the-art fiber processing technology, dry it to no more than 10% moisture, and wrap, bale, and roll it for shipment, Moore says. Brown pulp, suitable for containerboard, contains 70% to 100% old corrugated cardboard and 0% to 30% mixed paper; gray pulp, suitable for boxboard, may contain as much as 75% mixed paper and as little as 25% OCC, Moore says. Neither grade is bleached. The product differs from bleached recycled pulp, which consists of high paper grades and pulp substitutes and which mills use in graphic paper and tissue applications. Bleached recycled pulp “is a much smaller market, and a much more focused market,” says Kelly McNamara, senior market analyst at Numera Analytics (Toronto). “The unbleached recycled pulp marketplace is the one that’s been rapidly growing.”
The United States exported more than five times the amount of recycled pulp in 2019 as it did in 2018, shipping more than 260,000 tons, according to data from the U.S. International Trade Commission. China was the destination for 81% of it; shipments of recycled pulp to China grew from slightly over 11,000 tons in 2017 and 14,500 tons in 2018 to more than 215,000 tons in 2019.
The pulp grade is a unique commodity by being entirely created as a response to policy, these analysts say. Without being able to import OCC and mixed paper in the quantities they had previously due to increasing restrictions on recovered paper imports, Chinese packaging manufacturers have been searching for other ways to bring in enough raw material supply to meet demand. By pulping in the United States, drying the product, and exporting it back to China, they have found a way around the “solid waste” designation the country has applied to recovered paper grades. In fact, Zhao says, there are no well-established rules or quality specifications for recycled pulp imports yet. “There’s no quality standard in terms of how much OCC and how much mixed paper you have to use, whether you have to make a dry pulp or if you can make a wet pulp,” she says. “So there are a lot of varieties right now.”
Over the past few years, ND Paper (Oakbrook Terrace, Ill.), a subsidiary of Nine Dragons Paper (Dongguan, China), has led the way in North American pulp mill investments. The company acquired a mill from Resolute Forest Products in Fairmont, W.Va., in 2018. The mill produces gray pulp and is one of only three air-dried recycled pulp producers in the world, the company says. ND Paper also purchased two mills from Catalyst Paper Corp. (Richmond, British Columbia) in 2018, one in Biron, Wis., and one in Rumford, Maine. Shortly thereafter, the company announced plans to invest $300 million over two years in expansion projects at those mills, the Wisconsin Rapids Daily Tribune reports.
Phoenix Paper (Wickliffe, Ky.), a subsidiary of Shanying International (Shanghai), has also begun purchasing North American mills to produce pulp, Moore says. In May 2019, the company bought a mill in Wickliffe that Verso Corp. (Miamisburg, Ohio) shuttered in 2016. The mill produces bleached hardwood pulp, but last August, Phoenix an-nounced a $200 million investment in a new recycled fiber pulp expansion at the facility, which it said it expected to complete in 2021. (The project has recently been put on hold, Moore says.) Overall, production capacity for the commodity has been growing “very, very sharply,” Zhao says.
A Wild Ride for Paper
New recycled pulp mill investments might have been a source of optimism for paper recyclers at the beginning of the year, but the unexpected impact of the COVID-19 pandemic on both supply and demand has overtaken many recyclers’ attention in the intervening months.
Androutsopoulos estimates that commercial supply of mixed paper has dropped 50% to 70% with so many people working from home. With advertisers reducing their budgets, newspaper weight has dropped up to 50% as well, she says. Cardboard also took a hit as businesses briefly shut down, though curbside delivery from restaurants and other workarounds have brought supply back up, she says. At Balcones Resources (Austin, Texas), Kerry Getter saw a similar effect, estimating commercial supply of paper dropped 30% to 40%. “We’ve also seen an increase in the residential side,” he says, “but not enough to offset the decline in commercial.”
While some grades did see a brief bump in value—Androutsopoulos says the price of OCC went up briefly, and Getter says the constrained supply and high demand for certain grades, driven by the run on tissue, helped recovered paper prices go “through the roof” for a while—the pandemic has been a mixed bag for paper recyclers. Deinked market pulp that goes into tissue is mainly used for away-from-home tissue, says Sanna Sosa, senior principal consultant at AFRY Management Consulting (Atlanta), pointing toward applications like lower-quality toilet paper and brown paper hand towels in public restrooms. Most of the tissue panic-buying that stores saw in the spring was of the “premium” at-home variety, she says. Pulp made from already-stressed recovered paper cannot hold up under the same machines or produce the same level of softness, Jose Gonzalez, senior principal at AFRY, says. Although the tissue sector is growing rapidly, most of the growth is in virgin tissue production, Sosa and Gonzalez say.
In addition, demand for away-from-home tissue products has dropped precipitously as companies have canceled their events, Sosa and Gonzalez say. This has also reduced companies’ need for and consumption of graphic paper for marketing and advertising products. The consultants say they’re concerned certain behaviors resulting from the pandemic will lead to permanent changes of habit and, consequently, to enduring changes in the recovered paper supply stream. For example, Gonzalez says AFRY predicts workers in the future will be likely to take a “hybrid” ap-proach to working from home and using the office, going in on some days and not others, resulting in a permanently reduced supply of sorted office paper. COVID-19 may also be catalyzing consumers’ shift to e-commerce, Gonzalez says, resulting in more OCC going straight to homes, where it does not reliably end up in the recycling bin.
With all the uncertainty the pandemic is creating, a reliable future market for OCC and mixed paper would be a relief for paper recyclers. But while the recycled fiber pulp sector has been growing, there’s also uncertainty about how big or permanent the demand will be, Zhao says.
A Diversified Approach
For the United States, a jump from exporting a little over 43,000 tons of recycled pulp in 2018 to more than 267,000 tons in 2019 may seem dramatic, but it’s still a drop in the bucket compared to the tons of recovered paper the country was exporting just a few years ago, before China’s recovered fiber restrictions went into effect. In 2015, China imported 15.7 million tons of recovered fiber from the United States—a number that dropped to 5.8 million in 2019, Moore says. China has indicated that it will stop accepting imports of OCC and most other recovered paper grades entirely in 2021. Gonzalez says China will probably proceed with the move, despite the country’s need for fiber.
Taken together, the current recycled fiber market pulp projects will add approximately 1.5 million tons of annual capacity, Moore says. (Zhao estimates a total of 6 million or
7 million tons of current recycled pulp capacity globally, a number she bases on her tracking of current and expected Chinese paper company investments.) Even that high-end global pulp capacity estimate is less than half of China’s U.S. recovered fiber consumption only a few years ago. With anticipated pulp capacities of these mills estimated from 250,000 tons to 500,000 tons annually, producers would need to start up dozens more recycled fiber market pulp mills to consume the volume of U.S. recycled paper that was exported to China.
Chinese paper companies are developing a range of strategies to meet their need for fiber in addition to producing recycled pulp in North America, Zhao says. ND Paper’s Rumford mill produces unbleached virgin kraft pulp along with recycled fiber pulp, and another mill the company purchased in 2019 in Old Town, Maine, will focus entirely on virgin kraft pulp, Moore says. “They also invest in containerboard and boxboard [production] outside of China,” Zhao says.
Chinese paper producers also have purchased or built recycled pulp mills in Southeast Asia, particularly in Vi-etnam, Laos, and Thailand, as well as Taiwan. Those countries are the four largest suppliers of recycled pulp to China apart from the United States, which accounts for 18% of total exports, Moore says. Companies are planning more recycled pulp mill projects in Vietnam, Malaysia, and Indonesia, as well as countries with no paper industry history, like Cambodia and Myanmar, he says. The Chinese investment in Southeast Asian mills is likely the result of a con-fluence of factors, McNamara says, including cost of freight, cost of labor, trade relations, and local environmental policy.
The growth in recycled pulp and paper production in Taiwan and Southeast Asia has begun to result in an increase in U.S. recovered fiber exports to the region. From 2017 to 2019, Taiwan increased its OCC imports from the United States from over 205,000 mt to over 721,000 mt; Vietnam increased its imports from 285,000 mt to 986,000 mt; and Thailand increased its imports from 104,000 mt to 341,000 mt. Laos, which didn’t import any OCC from the U.S. in 2017 or 2018, imported more than 9,000 mt in 2019. The United States exported more mixed sorted paper to Taiwan and Malaysia over that period as well, though in lower numbers than the OCC volumes. Overall, U.S. exports of OCC and recovered mixed paper to Taiwan and Southeast Asia increased from 1.29 million mt in 2017 to more than 3.27 million mt by 2019.
Testing the Waters
Subsidiaries of Chinese paper companies have led the way in recycled pulp mill investments, but Zhao predicts more U.S. recycled pulp producers will come on the scene eventually. “I think with American producers, one of the biggest concerns they have is with uncertainty with the [Chinese] policy,” she says. Moore points to a few North American companies that have already made such investments. Among them are the newly announced Empire Sunshine Recy-cled Fiber in Fairless Hills, Pa., which will partner with a yet-unnamed Chinese equity partner; Kamine Development Corp. Sustainable Infrastructure (Bedminster, N.J.), which in December announced plans to partner with technology company Celadon to develop two new facilities capable of processing more than 800,000 tons of mixed paper and OCC into recycled pulp and paper annually; and Total Fiber Recovery (Eugene, Ore.), which announced in February its plans to establish a recycled pulp facility in Chesapeake, Va. The mill will begin operating in 2021 and have the capacity to process 300,000 tons of mixed paper and other recovered fiber annually, the company says. While investors have recently acquired and purchased mills all around the country that are already equipped to process recycled pulp, recy-clers are likely to see any newly built mills spring up on the coasts, due to both their status as strong population centers and the logistical ease of shipping to China, Zhao says.
Recyclers say the burgeoning recycled pulp market has yet to create a major demand pull or price increase for their mixed paper and OCC. Androutsopoulos has yet to hear from companies operating newly opened mills or planning mills in the region. “Nobody has reached out, and it certainly hasn’t been reflected in the pricing,” she says.
On the other coast, at Far West Recycling (Portland, Ore.), Keith Ristau says he has heard from one company interested in building a recycled pulp mill in the Pacific Northwest, with the intention of exporting the pulp to China. “There’s nobody that’s actually started to build yet,” he says, “but there certainly is talk about it.” He adds that per-mitting requirements might be delaying the process.
Down in Austin, Getter says that while Balcones hasn’t shipped directly to any recycled pulp mills, he believes he’s seen some indirect benefits from the investments. “Their presence has helped take some of the domestic fiber off the market and put a little bit of a floor on the price,” he says.
Paper recyclers are waiting—for recent investments to come to fruition, for potential investors to gain enough confidence to acquire or build mills, for the impact of COVID-19 on the recovered fiber market to stabilize, and especially, for a new path once China’s total recovered fiber import ban goes into effect in 2021. “The fact is that China will have this need for fiber,” Gonzalez says. He believes the hard wall of the ban will be a catalyst for more recycled pulp mills starting up in the United States and Southeast Asia. “All of these projects will be needed,” he says.
Emilie Shumway is senior editor/reporter for Scrap.