Photos courtesy of Fastmarkets RISI
Bill Moore of Moore & Associates, Atlanta, addresses attendees of the 2018 RISI International Recycled Fiber and Containerboard Conference.

Recyclers and consumers of scrap paper gathered at the 2018 RISI International Recycled Fiber and Containerboard Conference, held in December in Shenzhen, China, to discuss an industry sector that had changed greatly in the previous 12 months.

Fast-changing government policies in China in 2018 produced immediate changes to where recovered fiber is shipped globally, and they also brought major pricing changes for key scrap paper grades.

As the conference participants looked ahead to 2019, they predicted additional reactions within the paper recycling sector as well as beyond that in the paper and board manufacturing industry.

Not so demanding

Conference presenter Bill Moore of Atlanta-based Moore & Associates provided an overview of how Chinese government policies created major changes to global recovered fiber flows in 2018.

Setting aside the turmoil in recovered fiber markets caused by China’s restrictions, Moore said a consensus among many recyclers was that “China’s new standard has been a good thing, despite the pain.”

While demand for and the price of mixed paper have “fallen significantly” because of the policy, Moore said “demand has increased for cleaner grades of recovered paper,” such as double-sorted, or No. 12, old corrugated containers (OCC) in the United States, and its European equivalent.

Japanese exporters have been winners, Moore added. “Their cleaner recovered paper is highly sought after by Chinese mills,” with demand rising by 40 percent in the past year. (This, another conference attendee said, has caused supply and high pricing problems for Japanese mills.)

For American and European exporters, increased demand for recovered fiber from India has helped soak up some of the tonnage that formerly headed to China, said trader Inder Aurora of Mumbai-based Tradecom International Pvt. Ltd.

India produced about 17.5 million metric tons of paper and board in 2018, he said, and it used recovered fiber to produce 65 percent of that volume. Of the 13.5 million metric tons of scrap paper India’s mills consumed in 2018, 7.5 million metric tons (55.6 percent) were imported, he added.

With land for forestry and agro- fibers scarce in India, Aurora said the nation would require imported recovered fiber for some time to come. “I look at it as a major opportunity going forward,” he told the recyclers and traders gathered in Shenzhen.

Aurora said India’s increased import activity started in 2018 because of a “price incentive” caused by the decline in value of mixed paper and some OCC grades on the global market, prompted by China’s tougher inspection regimen. “The volumes of [exported] recovered paper to India will gradually keep going up as the optimal use of installed capacities and the restart of stalled capacities” gets underway, he said. (For more information on opportunities in India, see “India’s growth story” on page 88.)

Dan Cotter, a vice president for CellMark Recycling who is based in the U.S., said recyclers and mill buyers in India face shortages of the old newspapers (ONP) and office paper grades because of the decline in print communication. Therefore, those grades are also less available for export.

Cotter said China’s tougher import restrictions arose in part because of what he called “wish recycling” in U.S. collection programs. He said single-stream programs have resulted in the declining quality of paper bales, and such programs in the U.S. (as well as those in parts of Europe and Australia) may need to change to meet the new standards.

“I’ve seen some pretty horrible stuff shipped,” Cotter said. “Something needed to be done. We in the West need to figure out how to make a better package.”

Photos courtesy of Fastmarkets RISI

Mixing it up

More than 2 million metric tons of mixed paper had been going to China annually, but “this has fallen to almost zero,” Moore said. Also, the U.S. market for No. 11 OCC (which consists of corrugated containers lined with either test liner or kraft) has been soft since the restrictions were introduced, he added.

“The price gap has really widened between No. 11 and No. 12 OCC,” Moore said, adding that the premium for No. 12 clean OCC is similar to the prior difference between No. 11 OCC and mixed paper.

Regarding mixed paper, Moore said, “Even before China’s effective ban on imports of it, the grade bordered on chronic oversupply.”

In 2018, the mixed grade sank to below $0 per ton, with some mixed paper facing disposal rather than recycling. However, paper and board makers in North America have begun to respond to the circumstance, Moore said.

He cited investments being made to absorb mixed paper by Pratt Industries and Green Bay Packaging in the United States, Cascades in Canada and Bio Pappel and Copamex in Mexico. (An overview of this activity can be found in the October 2018 Recycling Today article “Moving the pieces” at www.RecyclingToday.com/article/recovered-paper-markets-in-flux.)

Cotter of CellMark Recycling said the year had brought “chaos,” but remarked that “as a trader, chaos offers us opportunities.” He said the chaos also had “made life difficult for our customers and suppliers” and he saw “significant changes coming” to residential collection programs in the U.S., which largely have deployed single-stream systems this decade.

Mumbai-based trader Aurora said China’s tight quality restrictions had provided a “wake-up call to the world.” Recyclers, he said, “should not just talk about recovery rates but [also] talk about how scrap is collected.”

Rahul Kejriwal of New York-based Go Green/Kejriwal called the restrictions “a good decision” by China’s President Xi Jinping. He continued, “I think the last 20 years was a mistake,” adding, “a lot of this paper should not have been made in China” from recovered fiber that was shipped halfway around the world.

Photos courtesy of Fastmarkets RISI

Kejriwal said that while media coverage had portrayed America as the loser in China’s scrap restrictions, he disagreed with that narrative and with Cotter’s concern about the single-stream recycling system.

“China is going away as a market in two years. In that time, new capacity in North America and Europe will absorb this fiber—even mixed paper,” Kejriwal said. “America will innovate, research and make adjustments to handle that fiber. They will not change their system to make China happy or to make India happy,” he added.

Regarding the 2018 woes experienced by America’s paper recyclers, Kerjiwal said, “America applauds when someone fails and bounces back; it does not punish failure. It’s a big problem today, but they’ll solve it.”

In-house efforts

The loss of mixed paper and some OCC shipments to China has resulted in renewed efforts to collect recovered paper there, according to Tang Yanju of the China Resource Recycling Association (CRRA). Tang said companies including Nine Dragons Paper Ltd. and Shanying International have invested heavily in recycling collection and processing plants to bolster their fiber supplies.

Tang said the CRRA has met with the Ministry of Ecology and Environment (MEEE) in China to portray the positive role recovered fiber plays in China’s economy and to communicate that “there has been a bottleneck” for papermakers. “The MEEE is considering the impact on our industry,” she told conference attendees.

The labeling of scrap materials as “solid waste” or “foreign garbage” remains a problem, Tang said. “We need to portray the difference between solid waste and recovered paper,” she said of efforts by the CRRA and paper companies.

Echo Xu, a China-based analyst with conference organizer RISI, said China had “restricted imports of recovered paper in both quality and quantity in 2018.” She said in the first three quarters of 2018, “China’s recovered paper import volumes dropped by 47 percent.”

That spells a dramatic difference from 2000 to 2017, when Xu said China’s compound annual growth rate for imported recovered fiber purchases was 3.7 percent. In 2018, however, China was on pace to purchase 36 percent less recovered fiber from the U.S. compared with 2017.

Within China, as imports are restricted, the competition for domestic OCC and scrap paper “will be ever more fierce” leading to 2020, Xu said, when the government intends to ban all recovered fiber imports. This is problematic, she said, estimating that the nation’s OCC collection rate was already 75 percent and could even be as high as 90 percent considering the number of boxes exported from China.

The author is senior editor with the Recycling Today Media Group and can be contacted at btaylor@gie.net.