American Recycler May 2005 Edition

Demand from China impacts recovered paper market

Bollegraaf Baler

By Brian R. Hook E-mail the author

China’s growing economy is impacting the global market for recovered paper. “China is very large on the radar screen,” said David Clapp, senior economist at Resource Information Systems Inc. “China certainly has had a tremendous influence on markets in the U.S.”

Recovered paper is now the number one export commodity from the U.S., measured by the number of containers and the traffic volumes out of the country’s ports, according to Clapp, who covers the recovered paper sector for the Bedford Massachusetts provider of economic analysis. “It is not a very glamorous item, but China is dependent upon it,” Clapp said.

Exports of recovered paper to China from the U.S. totaled 5.9 million metric tons in 2004 compared to exports of 1.9 million metric tons in 2000, according to Clapp. Total exports from the U.S. reached 12.9 million metric tons in 2004 compared to 9.58 million metric tons in 2000.

China will continue to add more recovered paper capacity, said Clapp. “They simply don’t have the softwood fiber resources.” Old corrugated containers (OCC) and old newspapers (ONP) are lower grades of recovered paper used to replace softwood fiber from virgin sources. Clapp said that China has a lot of virgin hardwood capacity used in printing and writing grades.

“That explains why you see this impact the bulk grades, like OCC and ONP, and not the high grades,” he said. “We see tremendous growth in the container board sector, some growth in newsprint, some growth in tissue… also recently, large growth in the holding box board sector.”

This demand from China has had a “tremendous influence” on markets in the U.S., said Clapp. In the past, domestic demand grew depending mainly on inventory conditions and underlying demand conditions at domestic mills. “Over the past few years, we’ve seen a strong influence from the export market on domestic price, especially on the coastal region,” he said.

But there is a limit to how long demand from China will support prices, Clapp said. “In China there’s significant amount of capacity that has come online and continues to come online in various paperboard sectors. Because of that, in many sectors there is an over capacity in the market, thus intense competition for market share when that situation arises,” he said.

“This puts a limit on how high they can raise their finished product prices. So that essentially caps what they can pay for raw materials.” Plus, he said China is looking to diversify and buy its supply from other sources. “They really have intensified their collection efforts. China is always under pressure to control their raw material costs,” Clapp said.

Demand for recovered paper has also improved domestically, according to Clapp. “Overall conditions last year and into this year are looking pretty good compared to the situation in 2000 to 2003,” Clapp said. “But for the moment, domestically, capacity is relatively limited. Demand for recovered paper is pretty much moving in parallel to underlying production.”

Stan Lancey, chief economist at American Forest & Paper Association (AF&PA) said total U.S. export growth of recycled paper actually slowed last year. He cited numbers from the U.S. Census Bureau. The agency reported exports of recovered paper slowed from a growth rate of 22 percent in 2003 to 1.7 percent in 2004. But domestic demand increased 3.4 percent in 2004 after edging lower during what Lancey called “recessionary years” from 2000 to 2003.

“Exports to China have continued to grow at a rapid pace, despite the overall slowdown in export growth,” Lancey said. U.S. exports of recovered paper to China rose 62 percent in 2003 and 8.8 percent in 2004, according to the U.S. Census Bureau data. At 6.5 million tons, exports to China accounted for 46 percent of total U.S. recovered paper exports in 2004.

AF&PA is a national trade association for the paper and forest products industry in Washington D.C. AF&PA’s members include manufacturers of over 80 percent of the paper, wood and forest products produced in the U.S. AF&PA often acts as the clearinghouse for statistical information and provides guidance on technical, regulatory and policy issues.

Lancey said the paper and forest products industry continues to take recycling “very seriously” since recovered fiber is a major source of raw material for the industry. “We are always looking for ways to increase the amount of paper recovered for recycling,” he said. The AF&PA has set a goal of recovering 55 percent of all paper consumed by 2012. Americans currently recover about 50 percent of all paper used in the U.S., according to the AF&PA.

Nearly 80 percent of all paper mills in the U.S. use recovered paper. The mills use it to make everything from newspapers and corrugated boxes to paperboard packaging and office paper. The AF&PA defines “recovery” as paper that is recycled at domestic mills, exported or used to make new non-paper products. Paper that is recovered but not utilized is not counted.

Victoria Mills, project manager for corporate partnerships at Environmental Defense, a national nonprofit organization in New York with 400,000 members, said some paper buyers are nervous about the domestic supply of recycled paper. She said that the growth of exports to China might be creating some unwarranted fears about the overall supply of recycled paper.

“But what most people don’t know is that what’s going to China is mostly old corrugated, newsprint and mixed paper, and not the grades used to produce high-quality printing and writing papers,” Mills said. She said that some exports of higher grades of recovered paper have actually decreased and now stand below 1999 levels in both tonnage and percentage terms.

“We are nowhere close to tapping out our domestic supply of that material. Responsible paper practices have become firmly established as a sign of good environmental stewardship. Growing demand for recycled paper is good for paper recycling in the U.S.,” Mills said.

“Recycling is a loop, and to make it work, we’ve got to increase recovery while also pulling that fiber through the system. That’s what specifying recycled paper does.”

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