Taking the Pulse of Paper & Plastics

The issues and concerns of paper and plastic recyclers were the hot topics at three summer seminars in Atlanta—Paper Recycling 2000 and ISRI’s paper and plastic recycling programs, held in June and July, respectively.
The events covered the spectrum of topics, including e-commerce, specifications, transportation, exports, quality, market trends, and much more.

Around the Paper World
Stagnant paper recovery rates in the United States represent a “lost opportunity both financially and environmentally,” said Michael Jackson of Weyerhaeuser Co. (Tacoma, Wash.), noting that the overall U.S. recovery rate has leveled off around 45 percent. In California alone, some 10 million tons of paper is still being landfilled even though paper recyclers “have the opportunity to sell ever-increasing volumes of paper to customers worldwide,” he said.
   Scrap paper packers must commit themselves to “ever-steady growth in recovery” to prevent “producer responsibility” requirements from taking hold in this country, Jackson said. Processors must also “work more diligently at educating and informing the public about the importance of recycling and find innovative ways to consistently recover more fiber,” he stressed.
   Worldwide, paper recovery is about 140 million tons and should reach 170 million tons by 2005, Jackson noted. The quality of fiber, however, is declining at the same time the industry’s pool of qualified workers is shrinking. Thus, “sorting technology becomes critical,” he said. (For details on the PaperSort system developed by Weyerhaeuser and MSS Inc., see “A Paper Sorting Dream” on pages 77-84.)
   The unpredictability of paper markets is like “the beast that you bring into your house,” explained Frank Crowley of KC International Ltd. (Lakewood, N.J.). “Even though it’s well-fed and purring one day, the next day it may eat you alive.”
   Though he argued that “there are no real trends anymore,” at least in pricing, Crowley did highlight a few developments in the recovered paper industry. Consolidation is one key factor, he said, noting that in markets where a dozen or so mills have shrunk to three or four buyers, the decisions made by those remaining mills now have a much greater and more immediate impact. Consolidation also means that smaller scrap players must offer something that the biggest sellers do not—such as better service, faster payments, or quicker decisionmaking, Crowley said.
   Monthly contracts for large, pre-set tonnages are also becoming more common, he noted, as are “creative” contracts that include price floors or ceilings. And there’s a greater willingness today to share information on processing costs between processors and consumers.
   But Crowley isn’t sure what role the Internet will play in the scrap paper industry. While conceding that the Web is a valuable tool, he questioned its usefulness in trading recovered fiber. “The only way I can really understand what a mill can or can’t use,” he said, is to see both the consumer’s operation and the available scrap paper.
   Victor Gaylor of Georgia-Pacific Corp. (Atlanta) spoke more enthusiastically about online commerce—not surprising since his firm, along with International Paper Co. and Weyerhaeuser, is developing a forest products e-commerce site called ForestExpress (www.forestexpress.com). The real-time pricing available through the Internet will enable companies to adjust more quickly to the marketplace, Gaylor stressed, while the speed and efficiencies possible in online trading will help cut costs all along the supply chain.
   Though he described exports as a “wild card” in which “rumors rule the facts,” Gaylor cited projections from the American Forest & Paper Association that have OCC exports climbing above 2.5 million tons this year and rising slightly higher in 2001. He also emphasized the importance of recycled fiber to the paper industry, noting that recovered paper accounted for 75 percent of all new capacity in paper manufacturing over the past 10 years.
   Expanding on E-Commerce. The first step in e-commerce is to analyze your current nonelectronic transactions and look for areas where electronic alternatives can make the process faster or smoother, said Richard Venditti of Fibermarket.com Inc. (Atlanta). E-commerce also offers the recovered fiber industry expanded customer and supplier bases, as well as greater stability and the ability to make more informed decisions, he said.
   But don’t expect e-commerce to be the answer to all your company’s problems, stressed R. Douglas Mowery of e-Fiber L.L.C. (Atlanta). E-commerce “won’t make a bad company better,” he explained. “If you don’t have good relations with your suppliers and customers, e-commerce isn’t a silver bullet or a panacea. You’ve got to have your own house in order before e-commerce can help you.”
   Kevin Preblud of PaperExchange.com Inc.’s Denver office explained that e-commerce shouldn’t be seen as just trading paper electronically. “What’s coming down the pipe is far greater and more sophisticated than just trading,” he noted. 
   Calling the paper industry antiquated in the way it conducts transactions, Preblud said “we need to think about how computers and e-business can help us do a better job. You’re all going to run your businesses in the same way—you’re just going to have some technology and some tools to help you be more competitive.”
   Integration is the key, he argued, envisioning a future in which the computer system of the scrap paper buyer will easily communicate with that of the seller, so that the entire transaction is concluded electronically with minimal inputting of data.
   And while Preblud conceded that today’s e-commerce ventures are probably several years from turning a profit for themselves, this is the time to get involved. He suggested starting any e-commerce activity with your second- or third-tier customers, though, rather than your biggest accounts.
   Managing Risk. Risk management techniques such as “floors,” “caps,” and “swaps” enable companies to, for instance, set a fixed price for a fixed volume of paper over a fixed time frame, thus avoiding potential price volatility, said Michael Moulton of Enron North America Corp. (Houston).
   “Risk management allows companies to manage what they can—basically, operations,” he noted. “You can manage your people, your equipment, and somewhat even your customers. The one thing you can’t manage are the price quotes. You don’t know what prices are going to do the next day.”
   Over Roads, Rails, or Waves. The transportation session at Paper Recycling 2000 focused on scrap paper packers’ options in trucks, trains, and seagoing containers. John Franssen of E&S Logistics L.L.C. (Richmond, Va.) explored trucking issues, arguing that while just-in-time deliveries have worked well for other industries, he doesn’t believe they have a future in a paper industry where mills are running 24 hours a day, seven days a week—unless the mills want to absorb the costs of round-the-clock receiving.
   Rather, Franssen called for processors to offer just-in-time pickups to their suppliers and urged mills to keep a four- or five-day inventory on hand since they have a greater ability to store material. Likewise, he stressed the need for better communication between mills, processors, and the trucking industry so that paper that must be picked up will still be collected even if the mills are temporarily unable to unload the material.
   Despite the many problems associated with recent railroad mergers, shipping scrap paper by train remains the cheapest approach, said Jeff Johnson of Union Pacific Railroad’s Omaha, Neb., office. In addition to carrying the equivalent of three truckloads in each freight car, noted Amy Trenolone of the firm’s Irving, Texas, office, railroads also offer single-billing services and much greater flexibility in scheduling than people might assume.
   “We’re not just boxcars,” Johnson said, noting that Union Pacific Distribution Services, for instance, offers shippers assistance with logistics and paperwork, as well as linking shipments to truck and warehousing options when necessary. Moreover, Union Pacific has also joined with Canadian Pacific, CSX, and Norfolk Southern to help create an online system called Arzoon to provide “one-stop transportation management services” seamlessly throughout North America. Arzoon will eventually enable shippers to control their entire transportation chain with just the click of a mouse, Johnson said.
   He also cited useful Web sites such as the Association of American Railroads (www.aar.org) and Steelroads (www.steelroads.com), the latter of which will someday enable shippers to put their rail needs out for competitive bidding.
   Before the widespread use of modern shipping containers in the 1960s, secondary fiber played a very small role in international trade, said James Maher III of Morgan Price & Co. Inc. (Miami). But thanks to that “container revolution,” paper traders exported more than 8 million tons of recovered fiber last year. Moreover, thanks to trade imbalances created by North America’s hunger for consumer goods from the Far East, the shipping lines began cutting freight rates on the backhauls.
   “For the first time,” Maher noted, “recycled paper could be securely shipped in closed containers at very competitive rates.” The bad news, he added, is that the shipping lines are working to “better rationalize the use of their equipment so that there aren’t so many tremendous bargains out there.”
   The good news is that even though freight rates have been going up, all reliable experts predict continued trade imbalances—and thus, favorable freight rates on backhauls—for years to come, Maher said.
   The key to finding bargains in ocean transportation is to analyze trade routes, find where the shipping lines are weakest, and then arrange for picking up those freight containers at “rock-bottom prices” and repositioning them to your market, Maher explained.
   The International Angle. During a look at the global recovered paper market, Gabriel Sundman of Stora Enso Oyj (Helsinki) explored nearly 30 years of paper recycling in Western Europe, where recovery rates rose from roughly 5 percent in 1970 to nearly 50 percent by 1998. Those rates are likely to hit a plateau and stabilize at around 60 percent in the near future, Sundman forecast. Certain Western European countries—the Scandinavian and German-speaking ones, for instance—have little capacity for greater collection whereas the United Kingdom, France, Spain, Italy, and others could collect more, he noted.
   And just about all of Eastern Europe, especially Russia, has ample potential for increased collection, Sundman said, since most of those countries saw their collection efforts cut in half following the collapse of the previously planned economies in the early 1990s.
   All told, Western Europe collected some 37.5 million mt of recovered paper in 1998, with the bulk of it (41 percent) in OCC, followed by ONP and OMG (26 percent), mixed grades (21 percent), and high grades/pulp substitutes (12 percent), Sundman said.
   Sundman also outlined the “producer responsibility” movement that European paper recyclers face, in which European Union countries legislate minimum recovery levels for all packaging materials (with Sweden and Finland extending the requirement to graphic papers as well) and make producers primarily responsible for preventing, handling, and using such “waste”—a definition that has long included recyclables.
   At the same time, though, the European Commission is considering whether to reclassify certain materials—such as recovered paper and scrap metal—to give them at least a partial exemption from the waste definition at certain points in their life cycle, Sundman said. Pilot projects on reclassifying recovered paper and scrap metal are under way, he noted, and should be competed during 2001.
   Finally, Sundman pointed to the growing trend in Europe to have large waste management corporations collect all wastes and recyclables, leading him to speculate that “the times of the independent paper collector [in Europe] seems to be coming to an end.”
   Looking southward, Denisse Taronji of Kimberly-Clark de Mexico S.A. de C.V.’s Atlanta office discussed the intricacies of exporting to Latin America. In addition to obvious advice such as making sure someone understands enough Spanish to translate important paperwork, Taronji also warned potential shippers to watch out for the difference between short tons (which are used in the United States) and metric tons (which are preferred in Latin America). Learn about the countries and companies you want to ship material to, she added, and determine beforehand what documents each country requires for recovered paper shipments. There are also various U.S. duty preference programs to consider, ranging from the well-known NAFTA to other treaties such as the Andean pact, CAMERE, CARICOM, and MERCOSUR.
   For assistance, Taronji pointed paper traders to various Web sites, including the U.S. Customs Service (www.customs. gov), a customs-related information site (www.customsdoc.com), a NAFTA-specific site (www.nafta-customs.org), two Mexico-related trade sites (www.mexico-trade.com and www.usmcoc.org), and a site listing various free trade treaties (www.natlaw.com/treaties).
   David Clapp of Resource Information Systems Inc. (RISI) (Bedford, Mass.) rounded out the global presentations by discussing the two-year trade outlook in Asia’s recovered paper market. RISI is predicting a 5.7-percent annual growth in Asian demand for paper and paperboard products between now and 2002, he noted, with Asian paper imports rising back above 6 million mt by 2002.
   RISI sees Asian recovered paper consumption growing 6.1 percent annually through 2002, with total consumption exceeding 55 million mt. Asian recovered paper imports should grow 3.7 percent a year in the same period, Clapp said, exceeding 10 million mt by 2002, with much of that paper headed for China.
   Looking to planned capacity expansions, Clapp noted that China is set to add 1.8 million mt of new recovered containerboard capacity by 2002, plus another 800,000 mt of recycled newsprint capacity.
   Meanwhile, Europe’s role as a paper exporter to Asia has climbed from 9 percent of total Asian imports five years ago to roughly 37 percent in 1999—a “dramatic shift” that’s likely to continue and which poses “major implications” for North American exporters, Clapp concluded.
   Balancing Supply and Demand. Turning to “the delicate balance between supply and demand,” Kerry Getter of Balcones Recycling (Austin, Texas) used a Lone Star state metaphor in noting that the office paper market there is so bad that “if the paper were oil, we’d simply leave it in the ground.”
   Unfortunately, he said, Balcones’ commitments to suppliers don’t permit it to leave paper behind. Plus, the company needs “a decent volume” to support its fixed costs. 
   Getter described the typical Balcones customer as an office building that’s usually larger than 400,000 square feet, with more than 800 inhabitants, where Balcones can put in a compactor. Its typical customer produces roughly 15 to 20 tons a month of recovered paper, only 2 to 3 percent of which ends up in the landfill. It costs Balcones about $70 a ton to sort and bale recovered paper and dispose of residuals, he added.
   Collecting Paper. Portland, Ore., changed from a waste collection system that required “a significant level of sorting” by residents to one that accepts commingled material, said Bruce Walker, the city’s solid waste and recycling program manager.
   Portland’s new approach is essentially a two-stream system—one for paper products and another for plastic, glass, cans, and scrap metal. In its first six months, the new system increased the amount of recyclable material collected more than 14 percent while keeping landfilled residuals below 2 percent, Walker said. But the trend is definitely toward single-stream collections, he added.
   Know Your Paper. Paper recyclers should know paper properties and how they relate to application, said Ralph Simon of SP Recycling Corp. (Atlanta) at ISRI’s paper recycling seminar.
   In particular, recyclers should know paper qualities like weight (a mill measurement, not the actual weight of the paper), brightness (an often-used standard of quality), moisture (ideally about 5 to 6 percent), caliper (the paper’s thickness), freesheet (how free the paper is of groundwood), opacity, and tear, which vary in importance depending on the application.
Product quality is vital for survival in the paper market, and quality is defined differently in different applications, Simon said. In newsprint, for instance, quality is measured by how long a roll can run without a break.
   Any contamination can have a negative effect on the paper’s quality, he said. “That’s why it’s important for you to know how to sort the paper out and make sure you know who you’re selling it to,” Simon said, adding, “You’re part of the raw materials supply, you’re like our timberlands. We’re buying paper from processors because we don’t have wood, we want to buy secondary fiber. So your job is just as important as the guy who’s out there harvesting materials.”
   To achieve quality, packers need to keep up with developments in the market, such as plastic barriers that are sometimes incorporated in paper that might on the surface look perfectly clean, he noted.
   Getting Up to Spec. “This is almost the Bible of the industry,” explained John Ockenfels of City Carton Co. Inc. (Iowa City, Iowa), while holding up a copy of the ReMA Scrap Specifications Circular.
   The ReMA specs aren’t a legal contract but serve as a guide, providing a helpful framework for operating a good business, Ockenfels said. For instance, the specs call for due diligence. “You’ve got to make sure that what you’re sending is what you agreed to send,” he said. “The buyer has to agree to buy it. The specs also say that, if you send what it’s supposed to be, the buyer isn’t going to come up with a reason to reject it.”
   The specs also review options for dealing with a rejection, including visiting the mill to inspect the shipment, forming a compromise settlement with the buyer, or submitting the claim for arbitration. “When the seller has been notified about a rejection, he’ll advise the buyer as to which of the options he’s decided upon,” said Ockenfels.
   If the load is important, it may be worth going to inspect. Such visits allow you to show your interest in the load, explain to the mill why you thought the shipment was good, and send a signal that “in the future you’re going to be more considerate about what you’re sending,” he explained.
   More often than not, you’ll come to some kind of settlement, Ockenfels said. Regardless of the outcome, he noted, he has always learned something new about the business whenever he has checked a rejected load.
   Reviewing the Grades. Simon, Ockenfels, and Giles King of Tri-R Systems Corp. (Denver) also provided a crash-course in scrap paper grades at the ReMA seminar.
   A pulp substitute, Ockenfels noted, is an intermediate grade between virgin pulp and scrap paper that doesn’t require deinking. It’s the cleanest and best-quality scrap paper a mill can buy.
   Pulp substitutes contain no printing and will be white or have bleachable dyes that are easily washed out. Hard white envelopes, hard white shavings, soft white shavings, unprinted bleached sulphate, and colored envelope cuttings are common sources of pulp substitutes. 
   “Pulp subs are the highest grade you’ve got,” said Ockenfels. “Don’t mess around sticking it down there with the cardboard, or next to the mixed paper, or outside. Keep it clean, keep it dry, and store it.”
   King reviewed the specifications for manifold white ledger, manifold colored ledger, sorted white ledger, sorted colored ledger, sorted office paper, and printer’s mix. (For specifics on these grades, see the ReMA Scrap Specifications Circular at www.isri.org.)
   Simon focused on news grades, noting that grading ONP used to be much simpler. For a long time, there was only news (postconsumer) and over-issue news (preconsumer). New grades emerged following the introduction of the deinking process and as newspaper publishers added inserts and color.
   Simon also noted a significant change in the most recent 1998 edition of ISRI’s specifications. No. 7 news at one time allowed for 2 percent outthrows, but with demand picking up in export markets, quality had to improve. One reason for changing the specs was to revise the outthrow threshold for No. 7 news to 1/4 of a percent, said Simon.
Perusing Plastics
   In the PET market, the good news is that collection is up. In the past five years, supply has risen from 2 billion to 3 billion pounds, with 1999 setting a recovery record, said Sandi Childs of the National Association for PET Container Resources (Charlotte, N.C.) at ISRI’s plastic recycling seminar.
   The bad news is that while the recovered PET supply has been growing every year, it hasn’t kept up with recycling capacity. “It hasn’t even begun to come close,” Childs said. “There’s a lot more capacity to recycle PET than there is supply.”
   Aside from supply problems, changes in consumer markets have led to enormous headaches for PET recyclers, said Steve Edelson of Waste Management Inc. (Melville, N.Y.).
   “Be careful, because the curbside plastic stream is changing and will continue to change,” he said, asserting that “the PET packaging landscape of the future will look very different than it does today. This is great for the packaging industry, but it could be potentially bad for recycling.”
   Old sorting and processing techniques may not handle new mixes, Edelson said. For example, single-serve PET bottles tend to fall out of the stream in sorting lines, though newer processing systems can capture these containers, he noted.
   Bottle manufacturers are also making containers in different colors—such as blue and amber—and with different physical characteristics, which is creating other problems.
   The new amber plastic beer containers, for instance, have a barrier in the center to keep air out, which makes them more difficult to recycle, Childs said. If collected in large quantities, such as at stadiums or other events, they can create a viable market.
   “Critical mass is what we’re going to need to really develop permanent strong markets, and there are people out there that want this product,” Childs said. “We’re just caught now between having just enough to be annoying but not having enough to be a true marketable commodity.”
   “It’s just enough to be a headache,” agreed Phil Calvin of Mohawk Industries Inc. (Calhoun, Ga.). “At 1 to 2 percent, it’s not economically feasible enough to pull these bottles out. There are people who will buy the blue and amber, but it costs more to pull them out and rebale them than you can sell them for.”
   Though Mohawk wouldn’t normally accept blue and amber bottles, it has no choice because if it doesn’t take them, someone else will, and the company has enough difficulty with scrap supply as it is, Calvin said.
“Right now, we’re sending most of them to the landfill,” he noted. “We’re running some trials with them, but there are some people who predict this could be 10 percent or so in the next three or four years.”
   And it’s only the beginning of such headaches, Calvin said, noting that, at last count, there are 25 new types of bottles coming out.
   HDPE Options. Offering a review of the recycled HDPE market, Scott Saunders of KW Plastics (Troy, Ala.) noted that HDPE is generally sorted into two grades—natural milk containers and mixed-color laundry detergent bottles. Recovered containers no longer need to be thoroughly rinsed, he said, and there’s equipment that will remove caps and rings from the bottles.
   In terms of prices, recovered HDPE tends to trade from 5 to 25 cents a pound, with the price generally tracking the virgin market, said Saunders.
   One opportunity in HDPE lies in ground bottles instead of baled. While quality is more difficult to achieve in this approach, prices tend to be higher, Saunders noted. Also, HDPE soda crates and 55-gallon barrels represent potential recycling opportunities, though you need to be careful about what’s been in the barrels because HDPE is porous and will absorb contaminants. 
   “We won’t accept anything that had any kind of a cleaner or pesticide or industrial chemical,” Saunders stated. “We look basically for food-grade materials.” •

—Aaron B. Pryor and Robert L. Reid