November/December 2010
Though China remains the main export destination for most U.S. scrap paper grades, other countries are stepping up the competition and expanding their market share, giving U.S. shippers more options going forward.
By Ken McEntee
A single word—China—can sum up the market for U.S. scrap paper over the past 10 years. From 2000 through 2009, the tonnage of U.S. recovered fiber heading to China increased more than sixfold, from about 2.2 million to 14.1 million short tons, boosting that nation’s share of U.S. scrap paper exports from 20 percent to 67 percent, according to U.S. Department of Commerce, Bureau of the Census data.
To fully grasp China’s dominance of the market, consider this: In 2009, it imported almost 11 times more U.S. recovered fiber than the second-largest buyer (India) and almost 2.5 times more than the other top 10 countries combined. China has focused most of its feeding frenzy on U.S. mixed paper and OCC, increasing its purchases of those two grades, measured by weight, by a factor of five and nine, respectively, since 2000. China also boosted its imports of other major grades in that time period, including ONP, chemical pulp, mechanical pulp, and deinking, though its interest in the latter two grades has waned in recent years.
Despite those declines—and though China’s overall market share slipped from 67 percent in the first half of 2009 to 61 percent in the first half of 2010—market watchers expect its fiber appetite will continue to grow for the foreseeable future. According to a market report for the Waste & Resources Action Programme (Banbury, England), China’s recovered paper consumption will rise substantially as its paper and paperboard production surges from about 80 million tons in 2007 to more than 150 million tons by 2020. Reflecting that trend, Nine Dragons Paper (Dongguan, China)—the country’s largest papermaker—plans to bring online 3.7 million tons of new capacity in the second half of 2010 and 2011. Most of that capacity will be for containerboard and paperboard, with 450,000 tons dedicated to recycled printing and writing paper. Likewise, China’s second-largest producer, the Dongguan-based Lee & Man Paper Manufacturing, plans to add almost 1.5 million tons of new containerboard capacity by March 2012.
China seeks to meet much of its growing scrap paper needs by improving its domestic recovery systems. Organized recovery plans and modern baling facilities are replacing traditional Chinese peddlers, says Pascal Aguettaz of Cascades’ recycled fibers supply group (Kingsey Falls, Québec). That said, China still will need to import substantial quantities of secondary fiber. “As China’s consumption of recovered paper increases, I think about half of the increase will come from internal collections, about a quarter will come from North America, and a quarter will come from Europe,” he says.
China clearly has established its role as the main destination for U.S. scrap paper, but trends suggest that its interest in certain grades is changing and that other emerging countries could erode its market share in the future. Here’s a look at what the last five years’ worth of export data and industry experts’ projections say about the future of U.S. scrap paper exports.
ONP Problems Ahead?
One big change appears to be brewing in the ONP export market due to the growing contamination levels in newsprint recovered through single-stream collection systems in North America. “Chinese mills are always going to want OCC from the United States because of our strong fiber,” says Jimmy Yang of Newport CH International (Orange, Calif.). “With ONP, though, I would think a little differently because they are sick and tired of the low-quality news that we make here.” Echoing his remark, Susan Choi of America Chung Nam (City of Industry, Calif.) noted at the Paper Recycling Conference & Trade Show in June that “outthrows and prohibitives [in recovered paper] have gone up” with the growth of single-stream programs.
The ONP quality problem isn’t limited to North America, notes Peter Seggie of the Confederation of Paper Industries (Swindon, England). In June, Palm Paper opened a 100-percent-recycled newsprint mill in King’s Lynn, England, that has the capacity to produce 484,000 tons a year, and it already is complaining about the quality of ONP from its U.K. suppliers, he says. “Almost half of the paper recovered in the U.K. comes from commingled collection systems,” he points out.
The quality of ONP available to newsprint mills is declining at a time when they need cleaner material to counter rising labor costs for manual sorting, Aguettaz points out. While visiting a Chinese mill two years ago, he recalls, he saw 60 to 70 workers pulling contaminants from newsprint on a conveyor. “The material going into the pulper was 100-percent No. 8 news, and it was just gorgeous,” he says. With wages rising in China, however, mills there might not be able to afford as many sorters. “Maybe now they have only 40 or 50,” Aguettaz says. “That’s one reason why the quality of material they are bringing in is so important.”
Up-and-Coming Competitors
China might remain the dominant buyer of U.S. scrap paper for the foreseeable future, but traders point to other countries as emerging markets to watch. U.S. recovered fiber exports to India, for instance, more than doubled from mid-2005 to mid-2010, with that country increasing its purchases of every major grade except mechanical pulp. Its low-cost labor is one reason why paper recyclers view India as a growth market, though they worry that high ocean shipping costs ultimately could slow the growth of shipments there.
In Southeast Asia, Indonesia has scaled back its consumption of several grades of U.S. scrap paper, but its overall imports still grew 20 percent from mid-2005 through mid-2010, as it stepped up its purchases of ONP, mixed paper, and chemical pulp grades. In the same vein, “Vietnam is starting to take in more and more unsorted curbside mixed paper like China used to do when it was just coming into the market,” Yang says. With labor costs rising in China, he notes, “Vietnam is becoming a transfer station for sorting mixed paper and moving it along to China.”
When comparing U.S. exports in the first half of 2009 with the same period in 2010, the strongest growth was—surprisingly—in North America. Exports to Mexico climbed 81 percent, to 951,400 tons, according to Department of Commerce figures, making that country the second-largest destination for U.S. fiber after China. Mexico not only boosted its imports of U.S. OCC 55 percent, to 222,700 tons, it also stepped up its ONP purchases 457 percent, to 283,800 tons, even as other nations reduced their intake of that grade. Mexico also has posted solid increases in its imports of U.S. mechanical and chemical pulp grades.
“I think many mills in Mexico will continue trying to use a higher percentage of pulp substitutes because the prices of the kraft pulps are still very high,” says Domingo Gutierrez of Cartones Ponderosa (San Juan del Rio, Mexico). For example, he notes, the price of bleached eucalyptus kraft for August in Mexico was $950 a mt, while the price of hard white envelope cuttings was about $612 in the U.S. Southwest. The growing tissue sector around the world is demanding more sorted office paper—a chemical deinking grade—and this trend is clear in Mexico. SCA is starting a 60,000-ton-a-year tissue machine this year in Ciudad Sahagun, and CMPC/Absortmex Mexico, in Altamira, is starting to buy sorted office paper for its new 30,000-ton-a-year tissue machine. “The Mexican economy has been growing more than expected,” Gutierrez says, “and this year our GDP probably will grow 6 or 7 percent compared with 2009.”
U.S. export figures also indicate notable growth in fiber demand from a few South American nations, suggesting that U.S. paper traders may look southward as well as eastward in the future. From mid-2005 to mid-2010, for example, Colombia increased its imports of U.S. scrap paper 149 percent, to 42,000 tons, and a similar story played out with Ecuador, which imported 59,200 tons (up 383 percent); Salvador, which imported 47,500 tons (up 168 percent); and Venezuela, which imported 46,200 tons (up 50 percent).
Smoother Sailing for Ocean Shipping
The rising and falling cost of ocean shipping has a major impact on the movement—or not—of recovered fiber around the world. In the past couple of years, exporters often have reported difficulty securing shipping containers or booking space on ships. By mid-2010, however, containers reportedly were much easier to book, and rates to China and other Asian destinations were coming down quickly.
According to Howard Finkel of the trade division at Cosco Container Lines Americas (Secaucus, N.J.), recovered paper may be among the lowest-value cargoes that steamship lines carry, but it also is among the most important. Scrap paper “makes up 33 percent of the total mix of commodities that move from the U.S. to Asia, and 40 percent of the volume moving from the U.S. to China, so it is critically important to our business.” He projects that demand for U.S. recovered paper will remain strong for the foreseeable future, especially from China.
According to data from the Port Import Export Reporting Service (Newark, N.J.), America Chung Nam, which primarily buys recovered paper for Nine Dragons, was the largest U.S. container exporter in 2009, shipping 4.4 million tons. That’s not only the largest exporter of scrap paper, but also the country’s largest container exporter overall, based on volume. Other recovered paper exporters that shipped more than 1 million tons last year included Potential Industries (Wilmington, Calif.), 1.5 million tons; Newport CH International, 1.4 million tons; Denison International (Diamond Bar, Calif.), 1.3 million tons; and JC Horizon Trading (Arcadia, Calif.), 1.2 million tons.
Tracking the Five-Year Trend
Much of the optimism about the next five years’ worth of U.S. recovered paper exports is based on the market’s growth in the past five years. Despite the recent worldwide recession and the related crash of the scrap paper market, U.S. exports of recovered fiber continued to rise in 2008 and 2009, albeit at a slower rate. After surging almost 10 percent from 2006 to 2007, for example, U.S. scrap paper exports inched up only 1.5 percent, to 19.5 million tons, in 2008 but improved on that in 2009, rising 7.5 percent to roughly 21 million tons.
Comparing mid-2010 with mid-2005 numbers, exports this year were about 30 percent higher, to 10.2 million tons. Exports of all but one grade grew in that period, the exception being deinking material, which declined about 30 percent. (Keep in mind that deinking grades make up only 2.5 percent of the overall U.S. export market.) Exports of chemical pulp substitutes, meanwhile, increased the most compared with 2005, rising 148 percent, from 416,000 tons in the first half of 2005 to more than 1 million tons in the similar 2010 period.
The value of the tonnage shipped also increased solidly when you compare those time frames. In the first half of 2010, the f.a.s. value of U.S. scrap paper exports totaled $1.6 billion, up 88 percent from the $851 million value of those exports in the first half of 2005, according to Department of Commerce data. Likewise, the average per-ton value of the paper shipped in that six-month period of 2010 was up 45 percent, to $156.91, from $108.15 in mid-2005. Aside from 2009, when the average price of exported U.S. recovered fiber dipped to $122.88 a ton, U.S. prices have risen steadily, from $119 a ton in 2006 to $141 in 2007 to $152 in 2008. After last year’s slip, signs point to price recovery this year.
The Tonnage Leaders: OCC and Mixed Paper
One notable trend in the mid-2005 to mid-2010 comparison is the return of OCC as the top export grade. OCC lost its premier position in 2000, when heavy buying from China made mixed paper the most traded grade. A decade later, though, OCC has reclaimed the top position, taking a 35-percent share of the export market in the first half of 2010, up from 30 percent in 2005. Mixed paper, meanwhile, claimed a 27-percent share by midyear 2010, down from 35 percent in mid-2005.
Looking closer at the OCC figures, U.S. shipments to China nearly doubled, from 1.2 million tons in the first half of 2005 to 2.3 million tons in the first half of 2010. India increased its purchases of U.S. OCC about 154 percent in the same period, to 333,700 tons. Mexico also was a notable buyer, doubling its purchases to 222,700 tons.
Among smaller markets, two South American countries showed strong growth in the mid-2005 to mid-2010 time frame, with Ecuador boosting its imports of U.S. OCC 364 percent, to 53,600 tons, and Venezuela expanding its purchases 163 percent, to 33,600 tons. Farther afield, Vietnam took in 17,900 tons in the first half of 2010—not a huge volume, but a more than 2,800-percent gain compared with the 600 tons it imported in mid-2005.
Of course, some countries decreased their imports of U.S. OCC in that time period, including Thailand, down about 58 percent, to 62,100 tons; Indonesia, down 53 percent, to 56,000 tons; Canada, down 29 percent, to 113,400 tons; and South Korea, down 23 percent, to 128,100 tons.
Turning to mixed paper, U.S. exports of that grade grew less than 1 percent from mid-2005 to mid-2010, with about 2.8 million tons shipped in the first half of 2010. Though China remains the largest single buyer of U.S. mixed paper, its imported tonnage declined about 8 percent comparing mid-2005 with mid-2010. In terms of market share, China consistently has purchased more than 60 percent of U.S. exported mixed paper since mid-2005, though its share was trending downward as of mid-2010, raising questions about its role in this market going forward. In the same vein, Canada—another major U.S. mixed paper consumer—decreased its imports of this grade 68 percent in the same period, from 369,600 tons to 117,700 tons.
As China and Canada stepped back, other countries increased their imports of U.S. mixed paper, including South Korea, up 105 percent, to 320,800 tons; India, up 79 percent, to 176,300 tons; Mexico, up 87 percent, to 79,200 tons; and Indonesia, up 92 percent, to 59,200 tons. Thailand boosted its imports of the grade significantly, from 3,400 tons in the first half of 2005 to 43,500 tons as of mid-2010. Among smaller markets, Colombia’s imports ballooned 950 percent, to 22,100 tons, and Vietnam’s interest swelled from about 800 tons in mid-2005 to 10,300 tons in mid-2010.
The Other Biggies: ONP and Mechanical Pulp
U.S. exports of ONP in the first half of 2010 were up about 3 percent compared with the same time period five years earlier, while shipments of mechanical/groundwood pulp grades other than ONP leaped 83 percent in the same time frame.
In both cases, strong growth in exports to China and Mexico led the change. China increased its purchases of U.S. ONP 44 percent, to 673,400 tons, from mid-2005 to mid-2010, accounting for approximately half of all U.S. ONP shipments. Traders wonder, though, whether the growing concerns over ONP quality will curtail that growth. Also, though the 2005-to-2010 numbers show solid gains in volume shipped, China’s 2010 ONP imports were down 50 percent at midyear compared with the same period in 2009.
When it comes to buying higher-grade mechanical pulp/groundwood, however, China is stronger than ever. Through the first half of 2010, U.S. exports of mechanical grades to China totaled 865,100 tons—155 percent higher than the number at midyear 2005 and more than double the shipments to China in the first half of 2009. The numbers could suggest China’s growing demand for groundwood but diminishing interest in contaminated single-stream ONP.
U.S. ONP shipments to Mexico, meanwhile, appear to be on a roll. Through June 2010, Mexico’s purchases totaled 283,800 tons—54 percent higher than its mid-2005 imports and more than its full-year 2009 imports of this grade. Mexico’s thirst for mechanical pulp/groundwood grades also is clear, as it increased its purchases more than fourfold from mid-2005 to mid-2010.
Other growing markets for U.S. ONP include Indonesia and India. Indonesia’s purchases grew 224 percent, to 97,800 tons, comparing mid-2005 with mid-2010, while India’s imports rose 160 percent, to 41,000 tons—a level that already exceeds the 38,000 tons it bought in all of 2009.
On the downside, U.S. ONP shipments to Canada, a major buyer, have continued to wane due to weakness in that country’s newsprint industry. After peaking in 2006 at more than 1 million tons, Canada’s imports of U.S. ONP plummeted to 602,000 tons in 2009 and totaled only 258,600 tons at midyear 2010. Canada likewise has cut its imports of U.S. higher-grade groundwood fiber. In 2002, during its time as the dominant market for such grades, Canada imported more than 500,000 tons of mechanical-grade paper. In contrast, it imported only 75,500 tons through the first half of 2010.
Assessing the Rest: Pulp Subs and Deinking
Though chemical pulp grades, or pulp subs, account for only 10 percent of total U.S. scrap paper exports, this grade posted the strongest growth—148 percent—of any category from mid-2005 to mid-2010, reaching just more than 1 million tons. China has been the difference in the improving U.S. pulp subs market. From mid-2005, when China imported 115,100 tons of U.S. pulp subs, it jacked up its purchases 440 percent, to 621,600 tons, as of mid-2010.
Since the 1990s, Mexico has been at or near the top of the list of buyers of U.S. pulp subs. After importing an average of 450,000 tons a year from the United States since 2005, Mexico’s tonnage dipped to 357,000 tons last year but seems to be rebounding this year. In the first half of 2010, its purchases totaled 211,500 tons.
One other country—India—deserves a mention in this niche. It has been a growing market for U.S. pulp subs, with its imports skyrocketing 581 percent, from 6,600 tons in the first half of 2005 to 44,800 tons in the comparable 2010 period.
The deinking market—which represents just 2.5 percent of overall U.S. scrap paper exports—is one niche in which China is not the major player. That distinction belongs to Canada, which imported 59,100 tons of U.S. deinking grades in the first half of 2010, up 21 percent from the comparable 2005 time frame and a 120-percent increase from mid-2009. Canada has imported more tonnage thus far this year than it did for all of 2009, suggesting that it may be returning to its heavy buying of the mid-2000s.
Though Canada imports the greatest tonnage of U.S. deinking grades, India posted the highest growth—42 percent—among significant buyers over the five-year period. That big-picture growth, however, fails to show India’s more recent import shift. After purchasing almost 60,000 tons in the first half of 2009, its imports of U.S. deinking grades declined 26 percent through mid-2010, to 44,300 tons. It’s unclear whether this decline is the start of an ongoing downward trend or just a correction from an unusually strong period last year.
Mexico is a market to watch in the deinking niche. From 2005 to 2007, the United States shipped an average of 277,000 tons of this grade to Mexico. After decreasing its purchases to 202,000 tons in 2008, then 52,000 tons last year, Mexico once again is stepping up its interest, increasing its imports in the first half of 2010 to 32,200 tons.
Though China is in no danger of losing its crown as the top international buyer of U.S. recovered paper, it will face greater competition from emerging countries. Plus, with single-stream collection programs likely to grow in popularity, China will continue to face ONP contamination issues, which could prompt it to shift its interest to higher-quality recovered paper grades. That shift could be good news for scrap paper sellers but bad news for countries competing for those same grades.
Ken McEntee is editor and publisher of The Paper Stock Report and Paper Recycling Online (www.recycle.cc).
Though China remains the main export destination for most U.S. scrap paper grades, other countries are stepping up the competition and expanding their market share, giving U.S. shippers more options going forward.