Rising confidence: economic conditions, export markets and technology help propel fiber flow around the world.

I want to start by making sure that I remind myself of my roots. We didn't inherit this company; we started it from the ground up. My brother and I started a mobile salvage company 26 years ago. We would drive around the streets of Toronto and jump in and out of old dumpsters, scavenging them for old corrugated and other paper fibers. We are a first generation company, pretty much like the trucks we used.

The last 26 years have been, at the best of times, challenging. However, like many of us in the business, we are able to manage and survive and grow.

Today [Metro Waste] operates 20 facilities. We recover 1.4 million tons of recyclable materials, 90 percent of which is paper. We service all sectors, from print shops to office tower to municipalities, and now promote maximum recovery and minimum waste.

Over the years, to ensure we had a market for our material, we established some strong ties with end markets and, over time, eventually partnered with two of them: Cascades and Norampac (both are based in Montreal.) These companies are Canadian companies, each producing many grades of paper, and they actually consume more than a million tons of paper themselves per year.

Now, our relationship with our mill partners is rather unique. We operate our company with no mill influence and we treat our partner mills like we would treat any other third party. And, believe me, they treat us the same way. At times, I believe they treat our suppliers a little bit better. Now it's a great relationship, it doesn't compromise the entrepreneurial spirit and the hands-on approach that it takes to remain competitive in this business.

FORCES IN MOTION. Now, 26 years ago, the only fiber flow I was familiar with was how corrugated flowed from the dumpster into my truck and from my truck to the tipping floor, with the final flow of cash into my pocket. There wasn't really anything dynamic about that. However, there is no question that that simple environment, when paper dealers were the only ones that dealt with paper, has changed for many dynamic reasons.

By definition, dynamics is the knowledge derived from observing given forces and the motions produced by these forces. This morning, I will present the dynamics of fiber recovery, while listing the given forces, analyzing each of those and giving you some observations. I'll look at the motions that are produced by those forces and the knowledge that hopefully we can derive from these forces listed.

The past 26 years, as I said earlier, have been, at the best of times, challenging. From landfill crises to being an environmentally responsible thing to do, the recovery of paper has become very complex. I've identified in this presentation, the given forces that I think affect our business, or the recovery business, looking at supply, economic conditions, domestic markets, governments from a municipal perspective, export markets and finally technology. As much as we believe today that we're excited about the export markets, that they're kind of re-encouraging our position, if we really look at it, we are really driven by all of these forces.

NAVIGATING THE FOREST. Supply, or as I like to call it, the forest, is implanted in every city, town and village. Really, the city is our forest. And those scrap dealers and waste paper dealers stuck under a bridge in the lower parts of any city are now material recovery facilities (MRFs) found in every industrial park servicing a section of that forest. Depending on the size of the forest, many MRFs can be found--sometimes too many.

Now, because these material recovery facilities do rely on recovering secondary materials, the most and the best to recover is predominantly paper fiber. As a result we have high recovery rates. There's no shortage of lumber-jacks. Anyone with the ability to collect that material and the ability to make a phone call can get into this business. From all signs right now, demand is good and, as a result, we have a huge demand for our trees. The forest also dictates, like it does for material recovery facilities, where a mill is going to draw its materials from--it defines the boundaries. In other words, a mill in Toronto is not going to pull material from Florida.

Paper recovery from the forest has become a sustainable business. There's greater confidence in the recovery business, simply due to the consistent demand for the fiber. As a result, we're making more investments in that infrastructure, also simply due to the consistent demand for fiber. As such, we are seeing that we are reaching maturity also, in that there are less and less materials available. If I look at our operations coast to coast, every time I talk to our sales people, I ask the same question: Where's the new business? There isn't very much paper or very much new opportunity out there. The impact of this maturing supply is also having an impact on the end market, particularly the practice of "just-in-time" inventory. There are more signs of panic as paper mills see their flow interrupted due to things like export or single stream. The signs of panic suggest there's a strong reliance on recovered paper by the end market. Many end markets use recovered paper as the only furnish in making paper. As for the days when waste paper was just that--waste--and we could get if for free, those days are gone. I believe the generators, in fact, know more about the price of paper than we do.

TACKLING THE MARKETS. Making money seems to be getting harder, too. Not only do we have to buy paper form our generators, there are other costs that we need to contend with-fuel, hydro, wire, equipment, insurance--and the costs keep going up. Each of those costs dictate how deep we're willing to go into the forest. I've given up trying to explain to myself how we survive this business, particularly because we have no control over the sell price. For those who think that higher recovered paper prices mean more margin, you're wrong. Remember, we have to pay for the paper. The higher the price, the more we pay.

If the financial side of this business isn't enough, the physical component is also giving us a challenge, and that is labor. It's more difficult to find, and when we do, it's costly and our productivity isn't where we want it to be.

Economic conditions have had the greatest impact on the recovery industry. Most dealers have made changes or are out of business. Those that have changed, and I look at our own operations from when we started, are now dealing with other materials--blue box materials, providing their customers with organic recovery, removal of skids--anything we have to do now to get paper. And more so, we're doing it to get income to cover ourselves and, because our costs are high, we also look for ways to reduce our costs. We do this by encouraging our operations to look for the highest rate, the highest return for the least that we have to do. So, it's not uncommon for us to continue to test the market.

The mills today have allowed the forest to be managed by others. This is quite evident by the number of third party operators or private operators that are out there, that are managing the forest. In fact, the relationship with my mills has also given me some of their dynamics, and it's kind of weird that their sell price for their product has actually no correlation with what they pay for furnish coming inbound.

The final point on the market side is that we have relied on the domestic markets for consuming our supply and, for the longest time, the end markets have dictated how that supply is going to go to them. This could be a reason why the end markets may have a different approach to some of the issues that they're faced with today. I think the latest one we're all familiar with is single steam. To deal with the issues around single stream, we see that there's a tremendous lobby going on for curbside programs not to change. The supply shortages are also increasing mills' interests to want to get into contracts.

THE WORLD STAGE. My observation regarding the export market is that there's a growing presence. They're able to be price competitive and they pay their bills. I love the creativity. Forget about sorting, they are able to take whatever and however and pay the right price. The export market has an advantage over the domestic markets in that every port in the world is really their forest. Anyone that can deliver to that port is a source they can draw from.

In the export market, there is consistent buying, we're staring to see it reflected in our pricing, which is great. They have stimulated a lot of action because now all of the sudden there are more brokers in the marketplace again, offering all kinds of new access to these markets.

FIBER FLOW FUTURE. This is a great time to be in this business. We can move everything that we've got, and for the past 20 years, that has always been an issue with us. I think, unfortunately though, when those situations happen, we see more and more people going into the forest and trying to grab product, and our margins are disappearing. Really our challenges have not disappeared.

With all of these forces that I identified, it's a wonder we survive this business, and I'm wondering where it's all going to go, because of the fact that it is a free-for-all, and it seems to go in any direction, which, in turn, creates a huge inconsistency for both the recovery industry and the end markets.

Finally, paper recovery is faced with many dynamics that cause the value of recycled paper to increase and decrease. However, at the end of the day, end markets are the consumer and end markets ultimately pay. So, if I was to look into the future with that statement, at some point, the end markets will realize that they have neglected this forest and will most likely take action to take control of that forest.

CITY STRENGTH

Al Metauro's take on how municipalities are a contributing force driving world fiber flow is available online at www.RecyclingToday.com

Editor's Note: This feature contains the edited text of a presentation made by Al Metauro, president and CEO of Metro Waste Paper Recovery Inc., Toronto, during the keynote session of the Paper Recycling Conference & Trade Show in late June.

The author is president and CEO of Metro Waste Paper Recovery Inc., Toronto.