China casts large shadow on recycle market.

China's voracious appetite for recovered paper and higher recycling goals in the United States are two key trends shaping the future of the recycled paper market. The two trends have a close relationship. China has become the "900-pound gorilla" of the recovered paper export and import business and is continuing to grow. Its massive share of recovered paper exports in the United States is shaping the future of the recovered paper business in the United States and perhaps the future of certain paper and board grades. In other words, everybody notices when China makes a move in recycling. China is the world's biggest importer of recovered paper and is in the process of installing multiple paper and board machines based on recycled fiber.

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According to Bill Moore, the fate of several key recovered paper grades is "made in China." Moore is president of Moore and Associates, Atlanta, Georgia, USA--a consulting group focusing on the recycling industry.

"China has become the driver for the U.S. market," he said. "The United States production of packaging board has been sluggish. We are seeing no growth to negative growth. The use of recovered paper in the United States is flat, and the growth is coming from China. All the peaks and valleys in the U.S. recovered paper market connect directly to buying by China."

For the first eight months of 2003, United States exports of recovered paper were 8.9 million tons--up 21% compared with the same period in 2002--according to U.S. Census Bureau figures. Exports to China accounted for 41% of those exports with United States shipments to China up 54% to 3.6 million tons. The second largest destination was Canada, at 1.7 million tons. Total U.S. exports could reach 14 million tons in 2003.

China's appetite for recovered paper is largely due to its massive expansion in paper and board production capacity. "Most containerboard mills built in China use recovered fiber," he said. "The newsprint machines going in also use recovered paper, as do many tissue machines."

"The trend in China is toward greater use of mixed paper grades," said Moore. Old corrugated containers (OCC) has traditionally been the biggest grade for China, but mixed paper in now the leader. For the first 8 months of 2003, China imported 1.6 million tons of mixed paper and 1.1 million tons of OCC from the United States according to U.S. Census Bureau figures.

The United States is definitely the biggest exporter of recovered paper to China. Of China's recovered paper imports, approximately 60% comes from the United States, 20% from Europe, and the balance from Japan and Australia. According to Moore, Germany was the largest European supplier to China but is now second to the United Kingdom. Disposal costs are increasing in the UK, and its below average recovery rates have risen. As a result, UK supply is increasing, Moore explained.

China's demand for recovered paper will continue to grow, and the United States will continue to be the leading supplier according to Moore. "China has some initiatives to increase its domestic recovery rate--currently about 31%--but it will not keep up with demand for recycled fiber. Demand for imports will continue to increase. Western Europe's ability to export is decreasing due to more paper and board production capacity based on recovered fiber coming on line in Europe."

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China's growing demand for recovered paper is the major factor behind the recent announcement by the American Forest & Paper Association of a goal to increase the United States paper recovery rate to 55% from its current 48%. Moore has questions about where this paper will come from. "The goal is a laudable one, but 2012 is a long time out," he said. "The question is also who will step up to the plate to generate those tons? The municipal recycling scene has been flat or declining for several years due to budget difficulties that are curtailing interest by cities in more recycling."

MIXED BAG

The growth of mixed paper grades is a controversial topic in the United States. Many municipal recycling programs in the United States have moved to "single stream" recycling in which paper, paperboard, metal, glass, and plastic are all collected together and then sent to a sorting facility. This creates a large volume of "mixed paper" grades.

"My estimate is that half of all mixed paper in the United States is coming from municipal supply streams," said Moore. "Commercial mixed paper is a growing, though smaller source that may start to look more attractive if pricing increases."

Recycle paper mills with the newest technology can better handle the more contaminated mixed paper streams. China is building many such advanced technology mills. "It appears that the new capacity being installed in China has good cleaning and screening and fiber fractionation," said Moore.

Some producers and users of recovered paper feel that the growth of single stream collection systems--and their higher level of contamination--is threatening the integrity of recovered paper markets.

The higher levels of contamination in single stream recycling systems may even lower the amount of available fiber, they say. "Instead of increasing the amount of materials available to paper mills, the amount of usable material actually could decrease," said Fred von Zuben, chairman and CEO of The Newark Group in the July 2003 issue of Recycled Paper News. Broken glass and wet paper are large contaminants and dramatically reduce the quality and value of mixed papers both for domestic use and for export.

Contaminated paper is a sore topic for many paper mills. SP Newsprint, a major producer of recycled newsprint, said earlier this year that it would consider using virgin pulp instead of old newsprint (ONP) if the quality of ONP delivered to the mill did not improve.

Other sources argue that single stream collection works and will continue to grow, largely because it is a cheaper and more efficient way to collect paper. Segregated collection systems simply cost too much they argue. "Reducing collection costs is important," said Mike Benedetto of Tidewater Fibers in Recycled Paper News. "We are competing with landfills, and we feel we must decrease our costs to compete." One reason for the cost pressure is that grant money used to start many municipal recycling programs has decreased dramatically.

Brian Fielkow, executive vice president of Recycle America Alliance (RAA), a company that is 90% owned by Waste Management, also defended single stream collection and said that new technology is the key to making it work.

"We are able to sell every pound of fiber from our single stream programs at market prices," he said in Recycled Paper News. "RAA is on the cutting edge of recycling technology. We are on the seventh generation of equipment."

HAPPY ENDING?

Future growth in recycling depends on a reliable supply of clean paper and advanced technology for sorting and contaminant removal. These factors will determine if one of the paper industry's best success stories has a happy ending.

RELATED ARTICLE: WHAT YOU WILL LEARN

* How China's vast imports of recovered paper are shaping world markets.

* Reasons behind the growth of "single stream" collection and its implication for recycled paper production.

* How continued demand for recovered paper exports may help the United States reach its paper recycling goal.

ADDITIONAL RESOURCES

* Recycled Paper News and The Paper Stock Report, published by McEntee Media, Cleveland, Ohio, USA: www.recycle.cc.

* Moore & Associates, Atlanta, Georgia: www.marecycle.com. Readers can request copies of articles on recycling at this site.

* American Forest & Paper Association, Washington, D.C.: www.afandpa.org.

BY ALAN ROOKS, EDITORIAL DIRECTOR

ABOUT THE AUTHOR

Alan Rooks is editorial director of Solutions! magazine. Contact him at [phone], or by e-mail at [e-mail]