The Scrap Paper Export Story

In the world of paper, the United States is king, and the facts bear out that boast.
For starters, it’s the largest producer of paper and paperboard. It has the highest per capita consumption of paper. U.S. mills consume the most recovered fiber. And last but not least, the United States exports more than twice as much scrap paper as any other country.
   Since 1990, U.S. scrap paper exports have grown 27 percent—from 6.5 million to 8.3 million short tons last year, according to the U.S. Department of Commerce, Bureau of the Census. While encouraging, that statistic doesn’t tell the whole story. In particular, it doesn’t show the highs and lows the market hit throughout the past decade.
   From the 6.5 million tons in 1990, for instance, U.S. scrap paper exports dipped to a decade-low 5.9 million tons in the recession of 1993—a decline of 9 percent. On the upside, they rebounded to a decade-high of around 10.4 million tons in the 1995 boom, or 76 percent higher than the 1993 low. Alas, that heady market was fleeting, with exports falling 31 percent to 7.2 million tons in 1996. And as of 1999, U.S. shipments of recovered paper were, at 8.3 million tons, still 20 percent below the 1995 record.
   Even so, the overall trend for U.S. scrap paper exports was undeniably onward and upward in the past decade. And given the rebounding economies in Asia, increasing global paper production capacity, steady growth in paper consumption in developing countries, and ongoing strength in the North American market, U.S. scrap paper exporters have many reasons to be bullish on the future.

Looking Northward
Throughout the past decade, the United States exported an average of 19 percent of its total recovered paper. It exported the highest percentage—25 percent—in the 1995 economic heyday and the lowest—17 percent—in both 1996 and 1997. Last year, of the 47.3 million tons of scrap paper recovered in the United States, about 18 percent was exported, according to Department of Commerce statistics.
   The vast majority of exported U.S. scrap paper—94 percent—heads to the Far East (including Oceania), Canada, and Mexico. And though the Far East consumes the greatest tonnage, the most significant growth has been in Canada. Since 1990, for instance, exports of U.S. secondary paper to Canada have grown 252 percent from 653,000 to 2.3 million tons in 1999. In addition, Canada’s share of U.S. scrap paper exports has increased from 10 percent in 1990 to 28 percent in 1999.
   The biggest reason for Canada’s incredible surge is its increased papermaking capacity. According to the Canadian Pulp and Paper Association (Montreal), Canadian producers invested nearly $2 billion in the past decade to build deinking facilities and improve their screening processes, thus boosting their scrap-consuming ability. Some 62 mills in Canada use recovered paper as all or part of their raw materials. And, since the early 1990s, recovered paper’s share of the papermaking raw materials market in Canada doubled to almost 25 percent last year.
   One large force behind that investment is the Cascades Group, a Montreal-based container company that has more than 100 business units internationally and recycles an estimated 2 million tons of paper and paperboard a year.
   Canada, however, isn’t the only NAFTA trading partner with a growing paper market and increasing appetite for U.S. recovered paper. Since 1990, Mexico’s imports of U.S. scrap paper have grown 21 percent from about 834,000 to 1 million tons, though its share of U.S. secondary fiber exports has remained essentially constant around 12 percent. Still, its growth rate shouldn’t be discounted given that it’s twice as high as the growth rate for the Far East (more on that later).
   Mexico’s economy is rebounding, and an increased demand for paper products is the result. In terms of scrap, Mexico focuses on OCC, deinking, and high grades, says Joel Litman of Texas Recycling/Surplus Inc. (Dallas), who notes that Mexico has generally been a steady market. And the numbers support that view. Since 1994, for instance, Mexico has consistently purchased from 1 million to 1.2 million tons of U.S. scrap paper annually. The one exception was 1995, when it imported an unprecedented 1.7 million tons.
   Mexico’s consistency doesn’t mean its market is static, however. Tom Lyon of Vista Fibers (Dallas) has seen the market change during his 30 years in the business. One change is that U.S. scrap paper shippers don’t have to rely on rail anymore because cross-border trucking is becoming more prevalent, he notes. This, he explains, enables smaller scrap players to participate more in the market.
   And, as with the U.S. paper market, consolidation has been changing the face of the Mexican paper industry as well. “Mills consolidated, and they shut down inefficient ones,” Lyon says. “A lot of those older, inefficient mills have been upgraded.” These upgrades have prompted Mexican mills to buy higher grades of U.S. scrap paper, he notes.
   Mexican mills also buy differently these days, Lyon says. It used to be that, if a scrap processor wanted to do business in Mexico, he had to cross the border and drum up business. Now, Mexican mills are likely to already be doing business in the United States. Overall, Lyon concludes, the Mexican paper market “has a long way to go, but it’s steadily improving.”

A European Nosedive
If Canada and Mexico are the rising stars in the U.S. scrap paper export market, Europe is the falling star. In 1990, Europe imported 623,000 tons of U.S. secondary fiber—almost the same tonnage as Canada. Since then, Europe’s purchases have declined 69 percent to 194,000 tons in 1999. Not surprisingly, its share of U.S. scrap paper exports has fallen from 9.6 percent in 1990 to 2.3 percent last year.
   That doesn’t mean, of course, that European mills aren’t significant consumers of recovered fiber. They are. Germany, for instance, consumes an estimated 10 million mt of scrap paper annually, making it the fourth-biggest consumer in the world behind the United States, Japan, and China. Other leading European recovered paper consumers include the United Kingdom, France, Italy, and Spain, each of which consume 3 million to 5 million mt annually.
   Obviously, these countries aren’t buying the majority of their scrap paper from the United States. So where are they getting it?
   Mostly from each other, as trade among European Union countries continues to increase. This makes sense given that, after the United States, Europe has the second-largest supply of scrap paper in the world.
   Many European countries have high paper recovery rates, in part because of well-established collection programs and in part because of environmental regulations that require the recovery of packaging materials, including paper items. (Germany’s well-known Green Dot regime is one such program.)
   With such rich secondary fiber resources close at hand, European mills don’t need to import much material from the United States. In fact, like the United States, Europe has a scrap paper surplus, which makes it a significant exporter of secondary fiber. Of the top-five exporters of scrap paper (with the United States in first place), in fact, four of them are European countries—Germany, the Netherlands, Belgium, and France. Much of Europe’s exported fiber heads to mills in the Far East.
   Interestingly, the European scrap market could reportedly be thrown off-kilter in the next few years. The destructive storms that ripped through Europe early this year leveled scores of trees that are now destined to become pulp. That could boost the supply of virgin pulp, creating competition for secondary fiber. The U.N. Economic Commission for Europe has suggested that the impact could last for years.

Asia Looms Large
The Far East is mostly a good-news scenario for U.S. scrap paper exporters. For one, it’s the largest consumer of U.S. secondary fiber, importing 4.5 million short tons in 1999—that’s more than half (55 percent) of all U.S. recovered paper exports and about twice as much as Canada, the second-largest buyer. And overall, U.S. scrap paper exports to the Far East have grown 12 percent since 1990.
   On the not-so-encouraging side, though, this 12-percent rate is the lowest among countries whose demand is growing—to wit, Canada, Mexico, and the Middle East/Africa. Plus, the Far East’s share of U.S. recovered paper exports has declined from 62 percent in 1990 to 55 percent last year.
   Even so, U.S. scrap paper exporters are optimistic about the Far East in the long term. Three of the world’s top-10 paper producers are Asian—Japan, China, and South Korea. Also, Asia as a whole is the largest scrap paper-consuming region in the world, with Japan, China, South Korea, Taiwan, and Indonesia among the top consuming countries. And, among those, Indonesia and South Korea are consistently among the top-three importers of secondary fiber in the world.
   From a macroeconomic perspective, Asian economies are steadily recovering (except Japan), their stock markets are rising, and their currencies are stabilizing. As these countries ascend, so will their consumption of paper and paperboard. That will, in turn, boost their demand for papermaking raw materials such as scrap.
   Two factors will continue to affect Asia’s need for secondary fiber. The first is its dependence on exporting goods. When Asian manufacturers ship their products in paper or paperboard packaging, for instance, that fiber is removed from the Asian recovery system. To replenish that lost fiber, Asian mills must import scrap paper from surplus nations such as the United States and Europe.
   The second factor pertains to Asia’s limited virgin fiber capacity. As Edward Sparks of Cedar River Paper Co. (Cedar Rapids, Iowa) explains, land can be populated by trees or people, and Asia is one of the most densely populated regions of the world. Trees are in relatively short supply, and demand for them is high in other markets, such as heating, cooking fuel, and construction. 
   Thus, Asia doesn’t have a large supply of native fiber to convert to paper and paperboard, but it has a large population of potential consumers.
   To make paper, Asian mills must turn to other materials, such as bagasse (plant residue left after something has been extracted, like juice), straw, hemp, bamboo, grass, and—notably—scrap paper.

Reviewing the Rest
Of the three remaining destinations for U.S. scrap paper—the Middle East/Africa, South America, and Central America/ Caribbean—only the first one posted positive growth in the past decade and none consumes significant tonnages.
   Since 1990, the Middle East/Africa increased its consumption of U.S. secondary fiber 15 percent from about 47,000 to 54,000 tons. The region’s share of the market is negligible, however, and has remained essentially unchanged, according to Department of Commerce figures.
   The other two regions fared much worse. South America, for instance, had the second-largest decline (after Europe) in the past decade, with its imports of U.S. scrap paper slipping 36 percent from 237,000 to 152,000 tons and its share of the market declining from 4 to 2 percent.
Similarly, Central America/Caribbean trimmed its imports of U.S. secondary fiber 19 percent from 73,000 tons in 1990 to 59,000 tons last year.
   Despite their less-than-impressive growth in the past decade, recent demand from Central and South America has been firm, says Al Kublin of Simco Recycling (Miami), noting that mills in the region are becoming more equipped to handle scrap. Recently, the region has been mainly buying deinking grades, some OCC, and very little ONP, he says.
   For his part, Edward Sparks is optimistic that Latin America could end up being a major player in the future. To be sure, the region has a lot of room for growth, given that its paper and paperboard production is around 14 million mt, or about 13 percent of U.S. production and 16 percent of European and Asian production.

Another Decade of Growth?
After the depressed market conditions in 1996 and 1997, the past two years were a welcome rebound for U.S. scrap paper processors. Since 1996, U.S. recovered paper exports have jumped 16 percent, thanks largely to surging demand from the Far East, Canada, and Mexico. And that strength has carried over into 2000.
   “I’ve been in this business 26 years, and this is the strongest market I’ve ever seen,” asserts Jim Taft of William Goodman & Sons L.L.C. (Portland, Maine), which does 60 percent of its business in Canada. “It’s a worldwide economy, and everybody’s busy. I can’t believe the consistency of it. It’s breaking all traditions for us.”
   Phil Alpert of National Fiber Supply Co. (Chicago), whose export business is primarily in North America, adds a tad less exuberantly, “Mexico and Canada are experiencing the same kind of strong markets as the United States, so the markets are pretty good.”
   But Alpert sees reason to be cautious. “Crystal ball gazers say that 2000 looks like a strong year for the paper industry, though I’d have to say that the current escalation in interest rates and energy prices might be a dampening factor,” he says.
   Steve Vento of Recycled Fibers International (Sunrise, Fla.), which exports to Asia, Europe, and Central and South America, notes that trade has been high for a few months, with deinking grades leveling recently. 
   But “it’s a tough call right now,” he says. “I think we may have basically hit the peak on a lot of grades. We’ve had a number of freight increases, and that doesn’t help.” Notably, there’s a new surcharge on the Panama Canal, higher freight rates in Europe, trucking strikes, and rising fuel costs, Vento says.
   Despite these recent market blips, the general trend for the past two years has been upward for U.S. scrap paper exports. And that trend should continue, as long as North America continues its economic roll, Asia’s economies continue their recovery, and developing nations continue to clamor for more paper.
   Adding a voice of realism to the issue, Nini Krever of Traders International Corp. (Palm Beach Gardens, Fla.) states, “When it comes down to it, we really don’t know when the down markets are going to end and when the up markets are going to start. The only thing we know is that mills are going to be making paper and that there’s going to be a need for secondary paper.”

How much of a need? 
According to Jaakko Poyry Consulting, global demand for secondary fiber could reach 200 million tons by 2010 compared with about 150 million tons today. 
   If true, U.S. scrap paper exporters can look forward to another decade of growth, especially given that U.S. recovered fiber is the highest-quality secondary fiber in the world market. And, most likely, the United States can look forward to retaining its position as the world’s paper king. •

               US EXPORTS OF RECOVERED PAPER BY DESTINATION
         Canada*    Mexico   Central   South  Europe MidEast/ Far East/   World 
                                          America/ America           Africa      Oc eania      Total
                                         Caribbean
1990    653.2       833.5     72.7    237.1    623.2    46.5    4,038.7    6,504.9
1991    604.5       986.5     66.2    339.0    450.   1 59.5    4,091.9    6,597.7
1992    796.3       913.6     67.3    288.7    365.7  114.7    3,901.4     6,447.7
1993    1,182.4    699.2     45.3    255.9    205.7    77.9    3,422.0     5,888.4
1994    1,751.4    1,118.6  31.8    263.6    328.9    71.5    4,139.1     7,704.9
1995    2,614.2    1,678.3  87.4    476.7    713.9   133.6    4,691.3   10,395.4
1996    1,382.1    1,016.9  56.0    249.4    370.2    98.8    3,985.9     7,159.3
1997    1,928.8    1,223.9  78.8    250.3    240.0    51.7    3,731.7     7,505.2
1998    2,410.3    1,238.0  57.3    196.5    228.0    56.8    3,913.5     8,100.4
1999    2,296.4    1,009.6  59.1    152.4    194.4    53.5    4,520.2     8,285.6

CHANGE
1990-99 252%       21%    -19%   -36%     -6%     15%     12%           27%