Latin America is comprised of 20 countries with a population of about 626 million people. It includes Mexico, Central America, the Caribbean and South America. Overall, about 400 pulp and paper mills are located across Latin America. Opportunities exist within the region to import recovered fiber.
Selling recovered fiber into Latin American paper mills comes with some challenges, however. For instance, just as in the United States, recovered paper inventories at mills in many Latin American nations are at capacity, and mills can’t accept more recovered fiber shipments. Virgin pulp prices also have been low, making recovered fiber more difficult to sell into these nations.
However, a few paper mills in Latin America have announced plans to add capacity during the next few years. For instance, Mexico-based Grupo Gondi plans to increase containerboard capacity by early 2020 at the latest. Grupo Gondi says it expects to start up a large containerboard machine at its mill in Guadalupe, Nuevo León, near Monterrey, Mexico, in the first quarter of 2020 that will produce 400,000 metric tons per year.
Vipa Group, which is headquartered in Switzerland, is one of the largest independent, family-owned brokerage firms globally. Yury Bulgakov, regional director of North Europe and South America, currently oversees the company’s trade into the Latin American marketplace.
Recycling Today connected with Bulgakov to learn more about what trading conditions with the Latin American marketplace have been like in 2019.
Recycling Today (RT): What have market conditions been like when working with Latin American paper mills this year?
Yury Bulgakov (YB): If we look at one year [ago], let’s say Colombia, Peru, Chile, Ecuador—they have imported a lot of recycled fiber (and I’m talking specifically OCC [old corrugated containers]) because the collection was not on a high level. They needed to import fiber to run their paper mills.
Nowadays, just one year [later], the collection has become much better. And considering China is not buying anymore, USA fiber just floated to Latin America, which is good for Latin American paper mills of course, but I see that this year, to sell OCC and to sell middle tissue grades is quite hard because the amount of offers is much higher than the demand. For tissue grades, that drives the prices down, for example.
For OCC grades, the paper mills are so full in Latin American countries, they simply cannot accept any extra orders. And this year, many paper mills have switched from using OCC to DLK (double-lined kraft corrugated cuttings), for instance. When prices go down, they can buy cleaner material at a cheaper price, which makes a lot of sense.
Of course, OCC has also become cleaner because China changed the markets drastically. China, Indonesia and Vietnam now want very clean OCC, and that’s changed also the quality on the collection side. Those who produce OCC No. 11, I think they’re doing more OCC No. 12. The amount of good OCC is [growing] in the market, which means that offers in the market are higher than in previous years. Many paper mills are complaining about that in Latin America.
Also, I think the world competition is so high that there is difficulty for paper mills to sell rolls. If they cannot sell rolls, they cannot produce more rolls—hence they buy less recycled fiber.
Talking more specifically, Ecuador has a decent amount of corrugated mills that use OCC and DLK. Mills in that nation said local collection was very good this year.
Also, the owners of paper mills there have collection facilities in neighboring countries that supply their own paper mills, even though it’s considered importing. So, that’s made it a challenge to sell additional volume there this year—local collection and consumption there is quite strong, and collection from other countries that belong to the same owners is also high.
Regarding Chile, we’ve been through several tenders this year with paper mills for OCC and DLK. I have noticed that if last year they had a tender each month for OCC and DLK, this year they have had a tender once in three months for OCC and a couple of tenders for DLK recently, which means that again, locally, they have enough OCC to collect. Also, in Chile, I have seen a bigger shift to importing DLK rather than OCC.
RT: What has it been like trying to sell recovered fiber to Mexico, specifically, this past year?
YB: Mexican tissue mills are buying at least two-times less imported recovered fiber now compared with the beginning of this year. They are saying that local collection is better, and the prices for local material are cheaper than importing the recovered fiber.
Also, a lot of recovered fiber is coming in not only through seaport but also by truck from the United States.
The market there is hot, and they don’t want too many more traders to enter this area and make conditions even hotter.
RT: For Vipa specifically, how has the company fared with trading materials to companies in Latin America?
YB: I think we’re doing pretty good on [selling] tissue grades. We are cooperating in partnership with several big paper mills in Latin America—they like the way we give them service with consistency, and we are always working with the market price. This year, we had a lot of success stories in getting customers on board with the Vipa portfolio, which we didn’t have before, so we’re increasing the demand of orders with them. I think by next year we’ll triple the amount because of building relationships.
RT: Overall, what do you think it will be like for recyclers and brokers hoping to sell recovered fiber to Latin American paper mills in 2020?
YB: I’ve had conversations with some of my customers, and some of them are installing new paper machines. Their production capacity is going to increase—some of it will double, and they count on our support that we’re going to be one of those suppliers that deliver the volumes [to them] on a consistent basis. As Vipa, we feel that we’re definitely going to have a lot of orders next year.
As for the market itself, those who have the machines there are not stopping them. Maybe they will run over capacity. But with those paper mills that are installing machines, capacity is going to increase. I think the market is going to grow next year.
RT: What have recovered fiber prices been like in Latin America?
YB: Well, many [paper mills] say that today for the tissue grades, like SOP (sorted office paper) and coated book stock (CBS), we are already at the bottom.
I personally believe that we are still not on the bottom, which is probably not good news for the collectors. But for many years, paper mills paid quite a high price on SOP, CBS and sorted white ledger. Right now, the paper mills are taking advantage of the fallen market. They are taking advantage of prices, which have gone down almost every single month.
I think the price for the next year [will be determined by] a combination of factors. What are pulp producers going to do? If they keep dropping the prices, then recycled fiber pricing goes down for sure.
If the amount of offers from the United States to Latin America is not going to grow, then the prices will stay. But if more material goes into the market, then the competition is bigger, and the prices will go down.
In the meantime, we need to see when the paper mills start new machines, which will probably balance the excess amount of material that goes to Latin America.
RT: What are virgin pulp prices like currently in Latin American countries?
YB: Brazil and Chile are two major pulp producers in the area. I don’t trade pulp, but from what I’ve heard from [paper mills], all the prices are in the range of $530 to $550 per metric ton. It’s much lower than it was six months ago and a year ago. Recovered fiber costs are lower, but a combination of factors will cause mills to buy virgin pulp instead of recycled fiber. One, there are many offers of recovered materials, and paper mills can play with that—especially when [mills] have lower sales of their end products. They don’t need as much recovered fiber. Overall, pulp prices have gone down, there are lower sales of end products that mills are producing and there are too many offers of recycled fibers.
RT: Are paper mills adding capacity in the near-term future in Latin America?
YB: Some paper mills are buying new paper machines, which will be installed in one to two years. Some are already in the process of installing machines. [These mills] will need more fiber, but again, most of them are using pulp as well. And if pulp producers are going to keep lowering their prices, then for the paper mills, buying the pulp will be more attractive than buying recycled fiber.
RT: Since China placed stricter demands on quality, have Latin American countries also followed suit? Is quality very important to paper mills in Latin America?
YB: High-quality is important in Latin America—quality is king. If you deliver good quality, you will likely continue to be able to place more orders. That’s why Vipa is very specific in what we buy and why we have quality inspectors on a volume basis, just to make sure that we deliver quality. Since China changed the market for OCC, now everyone wants clean OCC. You can ship OCC No. 11, but then you might get a claim. The paper mills want very clean OCC.