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When Patrick Lai, CEO of Hong Kong-based Cycle Link International, presented at the 2017 Paper & Plastics Recycling Conference (PPRC) in Chicago, he talked about China’s plans to place restrictions on imported recovered paper quality. At that time, China had announced plans to accept only 0.5 percent prohibitives in imported recovered paper bales.

However, he said attendees weren’t certain whether the 0.5 percent prohibitives threshold was possible and if China would really enforce that standard.

Two years later, it’s clear that China was very serious about the standards it introduced in 2017.

Lai presented again at the 2019 PPRC in Chicago, discussing China’s demands for recovered paper. He said the quality of recovered paper going to China has “highly improved” since 2017 and most bales are at or below the 0.5 percent threshold.

China was true to its word about the quality demands it set, so it’s almost certain that nation will remain true to its word and decrease recovered paper import licenses to zero by the end of 2020, Lai added.

Picture in China

During the session titled Eastward Bound at the 2019 PPRC, Marc Ehrlich, owner of Switzerland-based Vipa Group, moderated a discussion among three panelists—including Lai—who each offered some insights into the changing dynamics for recovered paper in China.

Lai shared numbers to indicate just how quickly China has decreased its recovered paper imports in the past year. China imported about 14.5 million tons of old corrugated containers (OCC) in 2018, and that number decreased to about 8 million tons in 2019.

Lai also estimated that China likely would import a total of 12 million tons of all recovered paper grades by the end of 2019. By next year, he said, China likely would import only 7 million tons of recovered paper “at most.”

Dynamics are changing with China's paper mills, too. Lai reported that the top 10 paper mills in China likely are going to add recovered paper consumption capacity, while smaller mills will slowly disappear. He said much of that has to do with quality.

Panelist Firoz Nathani, president of New Jersey-based Mehali Inc., said about 75 percent of all U.S. recovered fiber shipments were destined for China in 2016.

“In 2016, if four containers were to go out [of the U.S.] with waste paper, three of those were destined for China, and only one was destined to go to any other country in the rest of the world,” Nathani said. “So, it should come as no surprise that when China announced that they were going to get out of waste paper by 2021 that we are going to have a big crisis in terms of demand.”

China’s shifting mill operations

China remains a major producer of corrugated boxes and containerboard. Although China is going to reduce its recovered paper imports in 2020, it likely will still import recycled pulp to feed its mills. Additionally, a number of China’s paper producers have had to shift their pulping and containerboard mill operations overseas. Therefore, trade opportunities for recovered paper are expected to emerge in other parts of the world, particularly in Southeast Asia.

In the last two years, Lai reported that some of China’s top paper mills have started to make investments in North American mills. For instance, Shanying International has invested in the Phoenix Paper LLC mill in Wickliffe, Kentucky, which is estimated to have an annual capacity of about 700,000 tons of postconsumer cardboard and mixed paper. Also, China-based Nine Dragons has invested in paper mills in Maine, West Virginia and Wisconsin that will be able to consume recycled pulp.

However, Chinese mills are making even more investments across Southeast Asian countries. Sherry Joe, senior marketing director at Orange, California-based Newport CH International LLC, said that Nine Dragons has announced plans to expand its paper mill in Vietnam. That company also is building a mill in Malaysia that is expected to have about 480,000 tons per year of recycled pulp capacity, and that mill is expected to come online at the end of 2019.

Joe added that packaging paper producer Lee & Man Paper is planning to expand its mill in Vietnam. The company also is planning to build a complex in Malaysia.

In addition, she said, Shanying International has agreed to build a paper mill in Malaysia.

“With many projects on the way in Southeast Asia by Chinese mills, it is estimated in the next two-to-five years that 2 million tons of recycled pulp and 3.5 million tons of recycled containerboard capacity will be added” in that region, Joe said. “That can offset about a quarter or a little more of the 17-million-metric-ton shortfall” in China.

Southeast Asian boom

"China is a major factor in the expansion of containerboard capacity in Southeast Asia in recent years and will be in the near future," Joe said.
 

In addition to China’s investment in these countries to meet its demand, existing mills in some of these nations are expected to add capacity to meet domestic demand. Joe reported that Vietnam has the potential to increase demand for recovered paper in the near term. “A lot of investors are eyeing Vietnam as the fastest-growing industrial hub in Southeast Asia, where demand for packaging materials is expected to balloon,” she said.

 

The Vietnam Pulp and Paper Association says 1.4 million tons of new paper and board capacity will come online in the country before the end of 2020, not counting Chinese mill investments there.

Indonesia also is increasing its demand for recovered paper. Joe said Jakarta, Indonesia-based Asia Pulp and Paper may convert about 850,000 metric tons of printing and writing paper capacity to containerboard production, most of which would consume recovered paper.

Opportunities and challenges

Opportunity exists for recovered fiber demand in Southeast Asia, yet some challenges are present in that region.

Joe said quality is extremely important. “Many Southeast Asian countries are considering following in China’s footsteps to impose stricter import restrictions on recovered paper, very much like the 0.5 percent imposed by China,” she said. Also, logistics can be challenging in Southeast Asia because “ports are generally smaller and with smaller capacity, so port congestion is an ongoing issue.”

Currently, Vietnam has a 2 percent contamination limit for recovered fiber imports, but Joe said many materials going from the U.S. to Vietnam might not pass inspections. She added that Vietnam has rejected a lot of mixed paper bales as well.

Also, logistics can be challenging in Southeast Asia. “[Southeast Asian] ports are generally smaller and with smaller capacity, so port congestion is an ongoing issue,” Joe said. “The transit time from North American ports to Southeast Asian countries is also long, and the majority of them are transshipment.”

However, Joe stressed the optimism for recovered paper in Southeast Asia. The region has about 600,000 tons of capacity currently, but she said that is expected to grow a great deal over the next few years.

“It’s going to take time for the Southeast Asian region to grow to its full potential,” Joe added. “But we believe Southeast Asia will be a major market for U.S. recyclers in the next two to five years for recovered paper.”

The author is Recycling Today’s managing editor and can be reached by email at msmalley@gie.net.