Recovered paper markets have gone through significant changes in the last few years as a result of China’s recovered paper import policies first enacted in 2017 as well as changes in generation.

During the Paper Spotlight webinar Sept. 16 as part of the Institute of Scrap Recycling Industries (ISRI) 2020 Fall Commodity Spotlight Series, Kelly McNamara, senior market analyst at Montreal-based Numera Analytics, said old corrugated containers (OCC) have grown in recent years to represent about two-thirds of global recovered paper supply, making them an important focus for many recyclers.

She said OCC exports out of North America have shifted in terms of destination in recent years. In 2016, about 3 out of every 4 tons of exported OCC were shipped to China. In 2019, 4 out of every 10 tons of exported OCC were shipped to China. Next year, that number likely will be zero, meaning the 4 million to 5 million tons of North American OCC destined for China this year will need to find new homes.

McNamara said other Asian countries are stepping up to consume some of those tons. Asian countries such as India, Indonesia, South Korea, Malaysia, Taiwan, Thailand and Vietnam have added about 5.5 million metric tons of containerboard capacity in recent years to supply China’s containerboard needs.

During the webinar, Hannah Zhao, senior economist at Boston-based Fastmarkets RISI, said countries in Southeast Asia are hungry to consume North America’s recovered fiber to produce containerboard.

“[China] either [has] to buy recycled pulp and make containerboard, or they have to buy a lot of containerboard from North America, Europe and elsewhere.” – Hannah Zhao, senior economist, Fastmarkets RISI

“[W]e all know Indonesia, India and South Korea set up some rules to restrict recovered paper imports. Will other Asian countries, like China, stop buying recovered paper anytime soon? We don’t think so,” Zhao said. “We think this region will be very, very hungry for recovered paper, and, in general, North America will be an important supplier to this region.”

McNamara said more of North America’s OCC stayed in domestic markets this year because of the coronavirus pandemic. Lockdowns have affected overall supply of OCC, with much less of that material coming in from commercial generators, such as retail operations and offices. Yet huge increases in e-commerce, which rose significantly in the first half of 2020, helped ease OCC supply challenges.

McNamara said reduced OCC supply and increased demand from paper mills increased pricing for most recovered paper grades in the second quarter. She added that containerboard demand has stabilized in the third quarter of the year, and OCC prices dropped to more stable levels as well. The U.S. average price of OCC hit about $60 per ton in the September buying period, according to Fastmarkets RISI’s PPI Pulp & Paper Week Sept. 4 report.

McNamara said about 14 million metric tons of new capacity are coming online across the globe to consume OCC and mixed paper. “Demand [for recovered paper] will continue to grow, but it will not include China,” she added.

However, Zhao said China likely will import containerboard and recycled pulp in the future. That country’s recycled pulp imports have been on the rise, she added, surging to 1 million tons in 2019.

Zhao continued, “About 15 percent of Chinese recycled pulp imports came from the U.S.

“Chinese paper companies have invested aggressively in recycled pulp in the U.S. and also in Southeast Asia,” she said, adding that Chinese companies have about 7 million metric tons of recycled pulp capacity planned.

She concluded, “For China, we have to look to whether China’s government will set up their rules on recycled pulp imports and whether they want to use recycled pulp as a temporary solution for their fiber shortage or as a long-term solution to their fiber problem. … They don’t have enough fiber, and their fiber, in general, is low quality. They either have to buy recycled pulp and make containerboard, or they have to buy a lot of containerboard from North America, Europe and elsewhere.”