March/April 2015
Recent declines in U.S. production and consumption of newsprint, boxboard, and printing and writing papers are likely to continue, says consultant Bill Moore, but growth in containerboard and tissue production will buoy domestic and international demand for recovered fiber.
The U.S. paper and paperboard industry, as well as the paper recycling sector, face several good news/bad news scenarios. The good news for manufacturers: Some U.S. papermaking sectors, such as tissue and containerboard, are on the upswing, and the outlook is promising for specialty niches such as molded fiber and paper bags. The bad news is that other U.S. paper sectors—particularly newsprint and printing and writing papers—are in serious decline; collection of recovered paper has stalled at about 51 million tons a year; and the paper recycling rate is hovering around 64 percent.
For paper recyclers and traders, the bad news of lower demand from China—the biggest consumer of U.S. recovered fiber—and obstacles in the transportation sector overshadow the good news of growing demand from India and other developing nations. Whether U.S. recovered paper quality is good thanks to its high level of virgin fiber (according to overseas buyers) or could be better due to its contamination level (according to domestic mills), the potential growth of mixed-waste processing facilities—sometimes called “dirty MRFs”—could spell trouble for future quality.
To get the big picture, Scrap spoke with Bill Moore of Moore & Associates, an Atlanta-based company that specializes in market research and strategic consulting for the paper recycling industry. Moore has spent 29 years of his 42-year career in the paper recycling market, including founding and serving as vice president of Paper Recycling International—a joint venture of Waste Management (now based in Houston) and Stone Container Corp. (Chicago)—and being the first recycling director for Waste Management. Since founding Moore & Associates in 1995, he has been a frequent speaker at industry events and has written numerous publications on the pulp and paper, paper recycling, and solid waste industries. Here is Moore’s take on the state of the U.S. paper sector, good and bad.
From 2009 to 2013, the United States recovered an average of 51 million tons of paper annually and had an average recycling rate of 64 percent. Can the United States significantly increase either of those numbers? The downturn in U.S. production of paper and paperboard—especially newsprint and the printing and writing paper grades—is reducing the amount of fiber available for recovery, so it will be difficult to increase collections much beyond 51 million tons. The recycling rate will go up even if we don’t recover any more tons because the denominator in that calculation—U.S. production—is going down. One way to increase recovery is to improve the quality of material coming into processing plants and materials recovery facilities. Quality problems in incoming material are resulting in high residue rates and fiber losses. Processors could reclaim that material if generators understood how to better prepare their fiber for recovery. There’s also potentially more fiber available from small commercial generators as we get better at recovering material from those sources.
How would you propose increasing the quality of incoming material? It’s an education issue; it’s telling generators to not put items that aren’t recyclable in their recycling containers. When people have large recycling bins, they become what I call “overzealous recyclers” and tend to put everything in them. They don’t realize that when they put nonrecyclable items in their bins, they can contaminate good, recyclable material and cause it to be lost. We’ve lost our way on education since the early days of curbside collection. We need to focus on that effort again, but the question is, who pays to do that?
At its peak in 2012, the United States recycled roughly 91 percent of its OCC. Is there any room for further growth in this sector? We still have some OCC to recover from small commercial generators, and the volume of U.S. OCC available for recovery is likely to increase, even if the recycling rate remains the same. The U.S. boxmaking sector—which could grow about several percent a year for the next five years—will give us more OCC. Also, the U.S. manufacturing sector is doing well, and boxes from the residential sector continue to increase thanks to direct-to-home Internet sales.
Are there quality concerns in the U.S. OCC stream, especially regarding lower-grade Asian corrugated? There are two kinds of Asian corrugated: old-style yellow board made from agricultural residues and bamboo, and corrugated made from 100-percent recycled fiber. The first material is extremely low quality, and it offers a poor yield for mills—80 percent or less. That material is a real problem, but it is declining because China’s new boxmaking capacity is producing 100-percent recycled fiber, which has its own yield problems. It yields 85 to 88 percent, whereas if a mill pulps North American boxes made from 100-percent virgin fiber, it gets a yield of 95 percent or even more.
The total U.S. newsprint supply dropped 57 percent from its most recent peak in 2000 to 2013, and its recovery tonnage has declined 44 percent in the same period. How much lower can this sector go? The consensus is that newsprint can still go lower, but it has to hit the bottom somewhere, and we’ve got to be well on the way there. From a processor standpoint, the good news is that ONP is a grade in short supply, which has made high-quality ONP almost a premium grade. If a mill needs ONP for deinking or another high-quality application, the material can be very difficult to get. There isn’t a lot of growth in demand for the material, however, because it now costs more to produce newsprint from ONP than from virgin pulp.
The U.S. printing and writing paper supply likewise slipped 37 percent from 2000 to 2013, while its recovery tonnage declined 21 percent in the same period. What factors are weighing on this sector? The printing and writing paper sector probably will go through what newsprint went through in the last 10 years. U.S. production and use of those grades is slipping, and there’s a lot more to come in terms of downturn. Electronic communication has really taken over those grades. Further, Asian mills have a lot of capacity to produce printing and writing paper, and they’re selling it into the U.S. market at very low prices. So it’s a double whammy for U.S. producers.
Which sectors of the North American paper and paperboard market show the greatest promise in the coming years, and which face the greatest threats? The tissue sector grows with the economy and population, and both are expanding in the United States, so tissue is expected to plug along at more than 2-percent growth a year. Containerboard is holding its own, also at about 2-percent growth annually, thanks to the healthy U.S. manufacturing sector, general U.S. economic recovery, and exports of the grade—although the strong dollar doesn’t help. Some smaller sectors that have done well include molded fiber, which has made a real comeback in products such as plates and carryout trays, and other innovative applications due to the anti-plastic-packaging movement. The paper bag business is holding its own after significant declines for 20-plus years, and cellulose insulation is showing some renewed strength.
Is the U.S. paper and paperboard industry as a whole growing or declining? It’s shrinking as a whole about a couple percent a year. In 2002, the United States produced about 91 million tons of paper and paperboard. By 2008, that total was just over 88 million tons, and by 2012 it was almost 82 million tons. In 2016 we think it will bump up to 84 million tons, but that’s still off 7 million tons from 2002. Most of the loss has occurred in the newsprint and printing and writing paper sectors.
What are the long-term recycling prospects of polycoated cartons? Will they ever achieve a high recycling rate? They will achieve a higher recycling rate. Polycoated cartons contain high-quality bleached softwood kraft fiber, and mills that consume that material have the technology to strip off the poly. Tissue mills are interested in that fiber in particular because their primary feedstock—printing and writing paper—is declining. Collection is the main issue for polycoated cartons. If you collect only limited types of cartons, like aseptic packages or gable-top cartons, the collection costs are quite high. Curbside collection programs could consider accepting all polycoated paperboard and then pack it into one grade. That would give the material more volume to improve its collection costs.
How have labor problems at West Coast ports and issues in the U.S. trucking industry affected paper recyclers and traders in the past year? Do you expect these or other transportation hassles to continue in 2015? The West Coast ports seem to have a chronic, recurring problem with labor disputes. The port workers slow down the process, costs go up, shippers decide to ship from somewhere else, then there’s less work, and the work issues and labor issues become even worse. It’s a bad downward spiral, and I don’t know that I see an easy resolution. For paper shippers, these disputes affect costs in terms of exports off the West Coast to the key Asian markets. To some degree, these disputes help East Coast shippers because a number of Asian countries can buy off either coast. Asian buyers often prefer the West Coast due to lower transportation costs, but if you bump up those costs, East Coast shipments become more competitive.
In the domestic transportation market, shippers enjoyed low-cost truck and rail transportation until about four years ago. Then new regulations on truck drivers and additional paperwork brought about a steady uptick in the per-ton cost to ship recovered paper domestically. The good news is that some of the regulatory requirements have eased so domestic transportation costs could stabilize or even decrease going forward, and lower fuel/oil prices also should help.
U.S. exports of scrap paper to China declined in 2014 for the fourth time in five years. Is this a temporary phenomenon, or are we seeing a permanent reduction in China’s demand for U.S. fiber? We aren’t going to see the double-digit growth we saw in the 2000s, but the bottom isn’t going to drop out, either. Currently, China has a lot of excess mill capacity it needs to work down, primarily through waiting for growth in domestic demand and growth in its economy. So it will be in catch-up mode for a while, but the need for fiber at Chinese mills is going to increase. Even though China is and will keep increasing its domestic paper recovery, it still will need substantial imports. Its balance of trade with the United States and the high quality of North American fiber will prompt Chinese mills to continue to come here to buy recovered paper.
Which countries hold out the greatest promise as the next big consumers of U.S. secondary fiber? India—which has been a longtime user of U.S. fiber—is one growth market. It imports almost the full range of U.S. paper grades, and it is the No. 1 buyer of U.S. high grades. It currently has few forest resources, primarily due to land ownership issues, so mill companies have not been able to plant trees. There have been some changes in property rights and land ownership reforms, but India’s paper industry still largely uses recycled fiber. Vietnam also is growing, along with other Southeast Asian countries, like Myanmar.
Domestic consumers complain that U.S. recovered paper quality is declining. What is causing these quality problems? One reason is that the United States is moving toward more mixed collection, and the natural outcome of that is the degradation of recovered paper quality. Another reason is that as recovery rates rise, we start to recover more material of marginal quality, which affects the overall quality of the recovered stream. And a third reason relates to fiber length/strength: As the world uses more recycled fiber, shorter fibers wind up in the furnishes, and that reduces the quality or yield of the final product. The truth is we’ve had declining quality for 25 years. The good news is I think we’ve reached a bottom, and China’s Green Fence initiative in 2013 helped that. The bad news is that quality costs money. Bumping up the quality is going to be costly and difficult, but it really is needed.
Are mixed-waste processing facilities—or dirty MRFs—a growing trend? If so, what could that mean for recovered fiber quality? That sector is still in its infancy, but it appears to be growing. The question is whether those facilities can make the technological leap to recover paper streams that truly are recyclable. In mixed-waste processing, you get into issues like organics and putrescible waste coming into contact with recyclables. Previous operators tried mixed-waste processing for decades, and almost all of the facilities failed. There appears to be some light out there now, but we still haven’t solved the single-stream quality issues yet, and now we’re trying to make another leap forward. There are some real question marks.
ISRI’s Paper Stock Industries Chapter is reassessing various scrap paper grades. What’s your view on whether and/or how the ReMA paper specs need to be changed? It’s an ongoing process that always needs to be revisited. It’s difficult to keep up with grade changes in the marketplace, but ReMA is making its best effort in a long time to streamline the process, get input, and come out with new guidelines and specifications. The issues pertain primarily to outthrows and prohibitives in the bulk grades, such as mixed paper, ONP, and OCC. But we also need to consider the source and basic fiber quality of the paper and board grades that make up the available supply for recovery.
What’s the future of paper recycling? We’ve hit about 55 percent recycled content in all grades of paper and paperboard worldwide. From a global perspective, mills probably have reached the limit of the percentage of recycled fiber they can use in their products. Tissue has roughly 50 percent recycled fiber and probably will decline to 45 percent in the next 10 years, but the tons of recovered fiber needed for tissue probably will be stable because we use more tissue every year. Newsprint peaked at 45 to 50 percent recycled content, and that level will probably drop to 30 to 35 percent. Printing and writing papers topped out at 10 to 15 percent recycled content and likely will fall back to 5 to 10 percent. Containerboard, in contrast, continues to use more recycled fiber. On average, containerboard has 60 to 65 percent recycled fiber worldwide, and you can go up to 100-percent recycled content, but not for all production as you need fresh fiber to make up for short fiber loss. Paperboard usually has a high recycled content—probably 60 to 65 percent—and that grade probably will be stable. Despite these expected declines in recycled content, the need for more tons of recovered fiber will grow because global demand for paper and paperboard is inching up, particularly for packaging grades in emerging markets.