JUNE 2009

Recovered paper in recovering markets
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Republic Services merged with Allied Waste a little over four months ago. Both companies report that the transition was smooth and the merger a success. The merger increased the number of landfills owned by Republic from 59 to 213 with synergistic savings of $150 million.

As many have become painfully aware, the global economic crisis sent shockwaves through the recycling industry. Domestic and international demand for recovered paper was strong through the first half of 2008, but a sharp decline in demand in the second half drove prices down. Since January, however, there have been glimmers of hope in several recycled commodities, including recovered paper.

“Recycled markets are not sustainable at prices we saw last summer, and they are not sustainable at the prices we saw in November and December. That was historically very high and historically very low,” said Marc Forman, president of Harmon Associates LLC, a Georgia-Pacific company and one of the largest buyers and sellers of recycled fiber in the world. The company sources secondary fiber for Georgia-Pacific’s recovered fiber mill system, as well as for other global customers. Harmon has been in the wastepaper business for 40 years and trades approximately 7 million tons per year. “So, prices will ultimately migrate to where they have traded in the past, within a band. Do we believe that prices will be sustained at current levels? No. It’s impossible for anyone to predict when demand will come back, but when it does there’s likely to be a shortage of supply which will spike prices up. We will recover and find our way back to where prices have historically traded,” said Forman.

According to AF&PA, exports represented 38 percent of all paper recovered through recycling during 2008 with China taking the lion’s share, 11.6 million tons of the 19.5 million tons exported to all countries. China also imported recovered paper from Europe and Japan, but United States exports provided the majority. For 2008, the U.S. Department of Commerce estimated the value of all American recovered paper exports to all countries at nearly $2.96 billion.

China recovers some paper internally, but it is such a large exporter of packaged goods that demand for paper far exceeds the country’s domestic production. Chinese recovered paper demand decreased dramatically during late 2008 due to excess inventory build-up earlier in the year and the worldwide recession, which drastically cut China’s manufacturing output and negatively affected the demand for packaging incorporating recovered paper.

Both domestic and international demand for scrap paper is a leading economic indicator. Nearly every consumer and industrial product incorporates recovered fiber in one form or another, whether in packaging or in related printed information. When consumer spending slumps so does the demand for recovered paper.

“Last January we saw the economic downturn moving aggressively forward, coupled by the fact that domestic paper mills started to close plants for annual shutdowns and some remain closed for extended periods,” said Wes Muir, director of corporate communications at Waste Management (WM), the largest residential recycler in North America. “We saw slowdowns from foreign paper mills, specifically in China, India and South America, which over the previous five years had been sucking up a lot of paper out of North America and driving up demand and prices.

“There’s still very weak demand domestically across the spectrum of grades. In some grades we are seeing steady demand from export markets. It’s hard to say that it’s increasing demand but it’s certainly steady demand,” said Forman. “Prices in general are being influenced by a lack of generation in the states. So as the economy pulls back there’s less paper coming out. With supply down and as demand increases, it puts pressure on prices to rise. We are seeing that especially in the corrugated markets,” he added.

Wes Muir at WM had this to say: “We had large paper inventories for a while, but we were fortunate because we were moving a lot of our inventory through. In late 2008, we were doing some temporary storage of materials because the drop in price had been so precipitous. By the end of January and the beginning of February we had pretty much moved a lot of our material out of storage and reduced our backlog. We’ve seen a slight uptick in prices of materials since about January.” As a result of the slowdown, WM has cut back on shifts, but has had few layoffs to date.

Of all the grades, old newsprint and groundwood grades that go into newsprint manufacturing have been hit the hardest, and are off as much as 30 to 40 percent.

Prices for recovered paper must continue to rise or governments will have to pump in stimulus dollars, tax incentives or grants in order to maintain a healthy recycling infrastructure. With curbside recycling programs becoming less profitable, local governments are being forced to re-examine their programs as they struggle to balance budgets. Recycling not only keeps these materials out of landfills, but also makes a positive contribution to papermaking by continuously building up a renewable supply of fibers that can be recycled over and over again, thereby significantly reducing the number of trees harvested.

Cities and towns that had been earning income from recovered paper and other recyclables to support recycling infrastructure and fund other programs have been hurt badly. Midland Park, New Jersey, for example, with a population just under 7,000, is a microcosm of what is happening across the country due to the drop in commodity prices. Last December the town’s recycling vendor was acquired by another company that announced that rather than pay for recyclables, it would start charging the town to haul it away – $5 a ton for corrugated, paper and co-mingled. Fortunately, the town had no contract, and found a new vendor that would pay $5 per ton for paper and haul away the commingled at no charge. “In 2008, our total income stream for recyclables, including scrap metal, were $79,000. For 2009, we project that stream to drop to approximately $9,000,” said Michelle Dugan, borough administrator. “There are some positive things happening and I’m always the eternal optimist.” She referred to the New Jersey Recycling Enhancement Act, a three dollar per ton grant which was recently reinstated that will be paid to municipalities to encourage recycling.

“Where we have long term commercial and municipal contracts, we are pretty much sheltered from commodity price fluctuations,” said Muir at WM. “Where it hurts a lot of municipalities are those who didn’t have long term contracts and were heavily weighted to spot market prices.”

“It used to be that recyclers would pay governments for these goods,” said Bruce Savage at the Institute of Scrap Recycling Industries. “But now governments have to pay recyclers. What was once a revenue stream is now an expense.”

The best strategy for communities to maximize income from recycled paper in good times and hedge against spending money in down markets is producing consistently robust, separate, clean streams. A model is Orange County Solid Waste Management (OCSWM) in North Carolina that recently won AF&PA’s 2009 Community Recycling Award. For 22 years this county has been aggressively promoting recycling, and the effort has paid off. “We are doing okay for two reasons. One, we accumulated credits with our paper broker during the high prices last summer and fall. When the prices dipped below zero we were able to work against that money. Our other saving grace is that we provide high quality. What goes in our paper bins has a very low contamination rate,” said Blair Pollock, solid waste planner for OCSWM.

Orange County (population of 128,000) is lucky to have a highly educated, highly motivated community with an interest in environmental activity – home to UNC Chapel Hill, the flagship school of the University of North Carolina.

OCSWM has curbside pickup of two streams, commingled (cans and bottles) and mixed paper, but has enlisted public cooperation to keep old cardboard and corrugated (OCC) out of garbage. In fact, if OCC is visible in garbage it is not picked up and the collector leaves behind a message as to why. OCC is picked up with mixed paper weekly in town and biweekly in rural areas. It can be either in the mixed paper bin, or larger pieces must be cut down to 3 x 3 foot, limited to ten pieces a time and be placed next to the mixed paper bin.

Aside from deploying lots of well marked recycle bins throughout the county, they have a full time staffer to promote recycling and waste reduction. At each of ten drop-off centers, eight cubic-yard dumpsters with elongated slots for OCC keep it segregated from newspapers, magazines and mixed paper which are collected separately. “We have created a culture where recycling is the expectation and we are producing clean streams of paper that have optimal value regardless of the economy,” Pollock added.

On the national scene, the American Forest & Paper Association (AF&PA) is lobbying hard in Washington to get stimulus money from the American Recovery and Reinvestment Act channeled to support paper recycling efforts. AF&PA represents the pulp, paper and packaging industries, wood product manufacturers and forest landowners – a sector that accounts for approximately 6 percent of the total United States manufacturing GDP which is as big economically as the automotive and plastics industries.

The stimulus legislation appropriated $3.2 billion for Energy Efficiency and Conservation Block Grants. Donna Harmon, AF&PA’s CEO is urging the Department of Energy (DOE) to use a portion of that money to increase participation and efficiency rates for material conservation, including recycling. In a March 12 letter to DOE secretary Steven Chu, Harmon stated, “In the wake of our economic turndown, overall paper demand has declined and taken the value of overall fiber down with it. At a time when many cities are not receiving the high prices they once received for recyclables, every effort must be made to preserve the consumer behaviors and recycling infrastructures that made our current successes possible.”

Scott Milburn, executive director of strategic communications at AF&PA, had this to say about paper recycling: “It’s one of the greatest environmental success stories of all time, one that combines both environmental and commercial interests. The money made from recovered fiber helps underwrite our recycling infrastructure.”

Since 1990 when the American paper industry established is first recovery goal to advance recycling, paper recovery has grown by more than 85 percent. Last year, the paper recovery rate grew to 57.4 percent as compared to 56 percent for 2007. AF&PA has set an industry goal to reach 60 percent paper recovery by 2012 and that may be achievable percentage-wise even if gross volumes fall lower due to the economic turndown.