September/October 1989
The oversupply of bulk grades in the United States will correct itself. Waste paper imports are on an upswing in Europe. Economic restructuring is making Mexico a major importer of secondary fiber. At ISRI’s 1989 Paper Roundtable, speakers focused on a positive future.
By Robert J. Garino
Robert J. Garino is director of commodities for the Institute of Scrap Recycling Industries, Washington, D.C.
A standing-room-only crowd gathered in Chicago in July to hear leading paper stock industry executives discuss domestic and international markets for waste paper at the Institute of Scrap Recycling Industries' (ISRI) Paper Roundtable. While acknowledging lower mill demand and oversupply for certain bulk grades, speakers nevertheless termed the longer-term outlook bright for both packers and consuming mills.
The roundtable was moderated by Richard M. Foohey, Great Eastern Packing & Paper Stock Corp., East Weymouth, Massachusetts, and chairman of the ReMA Paper Stock Institute (PSI).
Too Much Old News
In his discussion of future markets for finished recycled newsprint, Larry Domark, waste procurement manager for FSC Paper Co., Alsip, Illinois, called the current market tough for suppliers of virgin pulp and paper stock. He termed the newsprint industry flat as a result of the oversupply and hinted that the situation will not improve soon. Consequently, Domark predicted that over the near term (approximately five years), smaller newsprint mills may be forced to close. Despite the difficulties in this industry segment, Domark believes newspaper press rooms are more receptive to using recycled fiber than ever before.
Looking closer at old newspaper (ONP) supplies, Domark believes municipally run programs are significantly altering the supply base. This, he said, was also bringing about changes in material handling as a result of increasing amounts of loose and mixed paper exceeding immediate demand. However, "oversupply of ONP is no one's fault," he concluded, and "its value should not be underestimated." The availability of inexpensive furnish (raw material) will spawn new jobs and new industry, he said, citing several examples of new paper products that likely will become commercial as a result of low-cost raw materials.
Paul Carroll, consultant for the James River Corp., Neenah, Wisconsin, opened his talk with a review and analysis of secondary fiber used by the U.S. tissue and towel market. Based on data supplied by the American Paper Institute, Carroll pointed out that from 1978 to 1988, recycled-fiber content in this market segment had increased from 34.9 percent to 44.9 percent--growing at about 1 percent per year.
ONP Oversupply "an Aberration"
William Hancock, manager, American Paper Institute, New York City, said domestic old corrugated container (OCC) consumption over the long term will grow by around 5 percent per year, which he matched against supply growth forecast at 2.7 percent. The growth rate of OCC exports, which averaged 18 percent per year between 1982 and 1988, is anticipated to be 10 percent per year over the next decade. Thus, given what he called "conservative" growth rates in OCC supply, industry demand, and exports, by 2000 the United States will be looking at an OCC recovery rate of 79.4 percent--compared with only 51.0 percent last year. He observed that packers will "have their work cut out for them in order to meet this projection."
Data on the news market was equally encouraging, with ONP domestic consumption rates forecast to mirror the production rate of new ONP supply. ONP exports, which have grown by 17 percent annually since 1982, are projected to grow by 12 percent per year. According to Hancock, this would result in a recovery rate for news of 48 percent by 2000. Hancock was less enthusiastic about mixed paper, which he termed a "dog" in the marketplace. He believes supplies will outpace demand and incineration will be required for this grade of paper stock.
Hancock remained optimistic about future ONP demand, stating that the current oversupply--"an aberration"--will correct itself very soon. To emphasize this point, he noted that Canada's potential for ONP could conceivably hit 3 million tons annually, compared with the relatively small tonnages of ONP now being consumed by Canada's boxboard industry. He concluded that in the past, packers said mills were not creating demand, but today, "circumstance" has created demand. Thus, according to Hancock, the challenge to the paper stock industry will be to maximize recovery over the next five years.
The Changing Scene in Europe
European imports of waste paper have continued to increase steadily every year, according to Nini Krever, Traders International Corp., North Palm Beach, Florida. While these increases point to even larger potential capacity in the future--hence, greater dependence on American fiber--the volumes are not proportionately spectacular.
Krever explained that the flow of waste paper within Europe works like a funnel: high grades and pulp move south from the Scandinavian countries to northern Europe. Northern European countries trade deinking grades among themselves and export low grades to the Mediterranean countries. Italy, Spain, and Portugal also import bulky grades, such as kraft and news. Krever said these countries can afford to buy low grades from the United States because of the freight differential. (It is cheaper to ship from New York to Naples, for example, than from Hamburg to Naples.)
Italy caused the most confusion in the market last winter, observed Krever, as a result of rotating port strikes that displaced large tonnages of waste paper in transit. Only in early July did some mills begin to inquire about new orders, but these were based on declining prices, she noted. Many European mills are closing for summer holidays and machine maintenance earlier than usual, due in part to high inventories and the hot summer. There has been some increased interest by Italian mills in white grades, she said, but the mills are reluctant to try these grades for fear of contamination.
According to Krever, Spain has experienced the greatest growth in the last few years--growth that is expected to continue. In the short term, however, inventories are very high. The second quarter was somewhat slower than previous quarters and some Italy-bound cargo was diverted to Spanish ports during the dock workers' slowdown. Krever predicted that July and August would be slow in Spain for the first summer in some years. Optimists hope that September imports will quicken as inventories drop.
In general, Krever concluded that all signs point to "favorable market conditions" ahead.
Mexico "Has Come of Age"
The situation in Mexico was examined by William D. Harrow, Perry H. Koplik and Sons, Inc., New York City. Harrow listed a number of achievements under Mexican President Carlos Salinas de Gortari, including reducing that country's burdensome internal debt--reported to be $100 billion.
Crediting Mexico's lifting of all import/export restrictions last year, Harrow pointed out that in 1988 Mexico became the largest importer of secondary fiber in the world. Of the 5.8 million short tons exported from the United States last year, Harrow noted that Mexico imported 1.2 million short tons, or 21 percent of the total. Historically, according to Harrow, Korea and Taiwan had been the United States' top two export countries, but Mexico "has come of age."
He pointed out that Mexico imported approximately 333,000 tons of OCC in 1988. This number represents approximately 30 percent of the total secondary fiber imported from the U.S., and should, he predicted, increase in 1989 to reflect the new capacity coming on stream. This new capacity will be fed by domestic waste, imported waste, and domestic pulp. Harrow anticipates that Mexico's purchase of U.S.-generated OCC could grow by an additional 35,000 to 40,000 tons in 1990. He estimated that imports of double-lined kraft (DLK), kraft bag waste, and kraft repulsing rolls will remain constant in 1989 and next year.
U.S. shipments of direct pulp substitutes to Mexico in 1988 were approximately 375,000 tons, representing 30 percent of the total secondary fiber shipped. The majority of this tonnage was bought by printing and writing-paper mills. Harrow anticipates demand for pulp subs also will remain constant, with "perhaps a slight increase to reflect incremental capacity coming on-line over the next twelve months."
According to Harrow, Mexican demand for deinking grades should increase in 1989; however, prices are also expected to be affected by "any weakening in pulp prices." Harrow pointed to a shift in demand from groundwood pulp to news grades in rolls and bales in an attempt to lower raw material cost. At the same time, he observed, secondary news prices have fallen in Mexico, as they have in most markets around the world, as a result of mandatory collection programs.
Harrow concluded by stating that business was still good, but not as good as it had been. Signs of change are occurring in North America--Mexico in particular--and while the Mexican economy seems to be on the threshold of exploding, Harrow warned that there is still a need for caution in dealing with this market.
The Pacific Rim: Some Markets Maturing
William A. Nielsen, Nielsen & Nielsen, Inc., Pomona, California, provided a market review and update of the major Pacific Rim countries and India.
Nielsen observed that due to commercial and technical circumstances, Japanese paperstock-buying activity is becoming more like Europe's. He noted that currency fluctuations are making Japan more of a timely consumer of paper stock, as opposed to a steady buyer of the brown grades as it was previously. In addition, Japan was said to be looking for more nondark medium DLK, which, according to Nielsen, is becoming a rare commodity. Japan's paper industry remains successful despite price increases for pulp--the effects of which, he noted, have been mitigated by its strong currency.
Markets for key bulk grades (ONP and OCC) in Korea were said by Nielsen to be in disarray, with larger paper mill inventories of news estimated to be at 60-90 days. In addition, with so many suppliers looking at the Korean market, he believes the news market will remain "depressed" in the near term.
Kraft linerboard sales in both Korea and Taiwan were off substantially, according to Nielsen. He attributed some of this to the countries' economies, which he said may have peaked. He sees paper stock consumption levels in Korea and Taiwan about the same as last year, with no overall decrease projected for secondary fiber. He estimated their paper stock consumption at approximately 800,000 to 950,000 short tons each per year.
Nielsen said that although business in China has been negatively affected by the events of last spring, the country remains an important consumer of long fiber (OCC, a little ONP, some white ledger, and others). Unfortunately, Nielsen continued, it is difficult to understand China's fiber requirements because of unknown inventory figures.
While Nielsen called the overall market in India "very good," that country continues to suffer from severe power shortages, causing mill capacities to drop from more than 70 percent two years ago to 56-58 percent in 1988.
In his general assessment of the paper industry, Nielsen said that overall demand for both hardwood and softwood grades was lower in 1989: "We're coming off of a peak; how low the valley is has yet to be seen."•
The oversupply of bulk grades in the United States will correct itself. Waste paper imports are on an upswing in Europe. Economic restructuring is making Mexico a major importer of secondary fiber. At ISRI’s 1989 Paper Roundtable, speakers focused on a positive future.