Setting sail: exporting recovered paper to mills in China is the backbone of America Chung Nam's business.

The opening of a paper mill complex in China offers little risk in terms of finding a market for end products. The Chinese economy has grown tremendously for the past several years, and more growth is expected.

In theory, the greater risk might be in finding a reliable pulp and paper source. But tot America Chung Nam Inc. (ACN), Pomona, Calif., that risk was less daunting, since ACN's background lies in scrap paper brokerage.

Thus far, America Chung Nam and its Nine Dragons mill complex have met with success, and the company's owners are embarking on an ambitious growth strategy that will involve the production of more finished paper and the trans-oceanic shipment of more recovered fiber.

SEARCHING THE PLANET

Entrepreneurs in China, Hong Kong, the U.S. and other nations have played a major role in the fast-paced conversion of China's agricultural economy to an industrial and information-based economy.

Although leaders of the centrally planned Chinese economy have made the crucial decisions to promote this conversion, corporations and entrepreneurs have stepped in to follow up on the opportunities created.

Husband and wife Ming Chung Liu and Yah Cheung created America Chung Nam in 1990 to serve as a U.S.-based broker to secure and supply recycled paper to several joint venture mills they co-owned in China.

Yah Cheung began her career with a paper processing company in southern China before starting a scrap paper exporting business based in Hong Kong in 1985. Ming Chung Liu has a background in medicine, but switched careers to paper and steel trailing and manufacturing before co-founding ACN in 1990.

ACN grew steadily in the 1990s as the company built strategic alliances and partnerships with recycling facilities in the U.S. and paper mills in China. ACN was successful in supplying fiber for the joint venture mills as well as for additional consumers of recycled fiber in China and other East Asian countries.

"In 1996, we made the decision to operate our own mill," notes Wang. "That changes the nature of our business, as we're now a trading company as well as a mill buyer for our own mill."

The mill ACN built is the Nine Dragons Paper Mill in Dongguan, China. According to Ming Chung Liu, the mill originally contained two hoard machines with the capacity to produce 600,000 tons per year of kraft linerboard (KLB). Additional expansions--including a third machine which was successfully started up in the first week of May--will bring the mill's capacity to one million tons annually.

Nine Dragons takes in considerable recycled paper feedstock to feed the KLB machines, with a heavy dependence on old corrugated containers (OCC) and mixed paper.

Finding that much secondary fiber has been a full-time job for ACN but the company has been up to the task. "ACN has a wide network of suppliers," Wang comments. "We buy material from the East Coast and the West Coast and in between. We source some material in Canada and have an office in Rotterdam, through which we source European fibers," he adds.

In an interview conducted last year with Recycling Today, Ming Chung Liu indicated that Nine Dragons procures "approximately 70 percent to 80 percent" of its furnish from North America, with the remainder coming from Europe.

In addition to its considerable scrap paper business, ACN also brokers scrap plastic. "We have been trading scrap plastic grades consistently for some time, although it's a smaller piece of our overall business," says Wang.

ACN has also become involved in the transportation side of the business, a natural offshoot for a company that ranked as the number one U.S. exporter by volume in 2001, according to the U.S. Journal of Commerce. ACN shipped more than 150,000 TEU containers (twenty-foot equivalent units) of material last year.

America Chung Nam Transportation operates a trucking fleet in North America while ACN Recycling Industries offers intermodal transloading services, storage and quality inspection. Additionally, the company operates its own container repair and storage service to ensure it does not run low on export containers.

THE PROCUREMENT PROCESS

In its attempt to secure material for its joint venture mills, its Nine Dragons mill and for other Asian consuming mills,' ACN at one point decided to open recycling facilities in California where it could process material accepted from scrap paper generators.

"We set up two wholly owned recycling centers in southern California a few years back, for the sake of testing the water," notes Wang. He describes the plants--in Wilmington and Pomona, Calif.--as "one-baler" plants, one of which also has a sorting line to process material collected in a single-stream manner.

Although the centers have helped attract additional material as hoped, ACN's officers are re-examining the company's need to become a leading processor. "Eventually, the processing won't be our focus," says Wang. "Instead, we feel that our focus should be on building relationships with suppliers here in the U.S."

The company's team of marketing executives works not only from ACN's main office in Pomona, but also from offices in Phoenix, Chicago and Metuchen, N.J., as well as Vancouver, B.C., Canada, and Rotterdam in the Netherlands.

While ACN's Nine Dragons mill consumes steady quantities of OCC, other brown grades and some mixed paper, the company seeks other material for its wider client base. "Some of the joint venture mills require old newspapers (ONP) for duplex board and newsprint, while some are tissue mills that we help supply with sorted white ledger (SWL)," says Wang.

The growth of Nine Dragons and the overall boom in the Asian papermaking industry has caused ACN to boost the amount of material it ships each year. "In 2001, we traded about 2.2 million tons of paper and pulp," says Wang. "What we're looking at for this year with the start-up of the new machine is between 2.5 million and 2.8 million tons." The growth, he adds, will largely be in the OCC and mixed paper grades consumed at the Nine Dragons facility, as well as ONP consumed at the joint venture mills.

Provided the Chinese economy stays strong, ACN's obligation to supply East Asia with recovered paper should only increase. Part of that obligation will be to another ACN-owned facility being planned for a town about 30 miles from Shanghai. "Some of the new capacity we'll need in the future will be for that paper mill, which will be coming online in 2004 and will have expansion phases scheduled for the next several years after that," says Wang.

"The Shanghai mill will be a 12 to 15-year project," he remarks. "And the original mill in Dongguan has more growth to come. In terms of our trading side, we're always interested in looking for long-term partners here in the U.S. to build our tonnage," says Wang.

When completed, the Shanghai mill will be able to produce three million tons per year of containerboard.

It will greatly increase the already considerable amount of recycled paper being fed into paper machines owned by ACN. The two paper machines already up and running in Dongguan are fed in part by a recycled fiber line that processes 1,100 metric tons each day.

Dongguan will eventually have two more paper making machines requiring feedstock, while the Shanghai mill may ultimately have more than four units.

"There's a lot of hard work in front of us," Wang comments. "Where are we going to find all that material? We'll have to spread our arms out a little more to cover it, and perhaps do some more procurement out of the Midwest. We also have room to grow in Europe, where our one office has been open for just two years."

A FAMILIAR DESTINATION

Thanks in part to the long-term, steady nature of ACN's buying and brokering practices, shipping to China has become more familiar and less intimidating to many U.S. paper recyclers.

"Over the years, we've been growing our business with the philosophy that we need to be honest, and we need to build dependable, long-term relationships,"' says Wang. "Things have to be win-win for both parties. We do not believe we can succeed all by ourselves in a vacuum."

In last year's interview, Ming Chung Liu said of ACN's suppliers, "they range from 10,000 tons per month suppliers to 100 tons per month small suppliers. Small and big suppliers are both welcome. Quality is the number one issue, and loyalty is important too."

The steady presence of ACN has been appreciated by many recyclers, Wang believes. "When we first came into the business in the early 1990s, export to China was kind of regarded as secondary or unfamiliar to a lot of packers," he remarks. "China was considered kind of a mysterious market then, and some packers weren't sure they could rely on us. Also, there are a lot of trading companies that come and go. We had to prove ourselves to the industry--that we are here for good and we know what we're doing."

The way ACN is set up--as a dedicated buyer that owns the mills it is supplying back in China--may be part of the reason it has succeeded with American recyclers. The owners of ACN understand the crucial role long-term, stable secondary fiber procurement plays in a mill's success. "It's a relatively rare set-up," says Wang, "especially with the amount of tons actually going through a buying office in the U.S."

The company and its officers also stress the need to foster good long-term relationships with its suppliers. Wang again hints that the company will likely back away from further growth on the processing side in favor of building strategic alliances with recycling facilities.

"It's quite likely we'll find some joint venture partners here in the U.S. on the scrap paper procurement and processing side," says Wang. "I don't think we're planning to do much more on the direct processing side; we don't wish to compete too much with our suppliers head-to-head. It offers a better future to partner with them."

TOP OF THE HEAP

America Chung Nam Inc. is the number one container exporter in the U.S. Several other paper companies are also among the leaders. Read more in an exclusive online sidebar at www.RecyclingToday.com.

RELATED ARTICLE: the return trip.

Recyclers are quite familiar with the advantages of backhauling--providing a load to fill a truck or rail car that is already scheduled to move from point A to point B but can accept cargo to take back on its return trip.

Shippers who are positioned in population centers that receive more cargo than they ship out can often secure the lower freight rates associated with backhauling.

That is a position currently enjoyed by some Pacific Coast shippers as they broker scrap paper to send from the U.S. to China.

China is in the midst of a manufacturing and export boom, shipping container after container of manufactured and semi-manufactured goods to the U.S.

The shipping lines and agents sending those containers in one direction inevitably look for any potential cargo to haul in the other direction.

Companies that ship goods from the U.S. to China--including paper recyclers--are thus exposed to some favorable shipping rates, as a container filled with scrap paper, even if booked at a low rate, is a better option for the shipping companies than sending an empty container across the Pacific Ocean.

RELATED ARTICLE: the European balance of power.

If the Chinese recycled paper market was America's oyster alone, that might suit American paper recyclers just fine. But companies such as America Chung Nam Inc. (ACN), Pomona, Calif., are aware that to obtain scrap paper at optimum pricing levels and in sufficient amounts, accessing European sources can provide a needed balance.

In a presentation at the 2001 Paper Recycling Conference & Trade Show, Wade Schuetzeberg of the ACN office in Rotterdam noted the emerging importance of the European scrap paper market in supplying facilities such as the Nine Dragons mill.

"Led by low freight costs and subsidized bulk-grade fibers, European Union market share began to grow increasingly in places such as India, Indonesia, Thailand and Taiwan," Schuetzeberg said, referring to conditions after the governments of Germany and other nations began getting more heavily involved in scrap paper collection.

The scrap paper broker noted that for a company the size of ACN, "building lasting supplier relationships is integral to the vision that the mill has. Its suppliers' health is the mill's own health--these two are inseparable as the mill is predicated on recovered paper as the primary raw material."

While many of those relationships will remain with American companies, the Europeans are not likely to be left behind. "The predominant source of supply for Nine Dragons has long been, and should continue to be, from North America," said Schuetzeberg. "To a growing extent, however, the mill has taken care to establish new sources of supply throughout the global marketplace, [and] European supplies of recovered paper are making their way into a meaningful share of supply."

The author is editor of Recycling Today and can be contacted via e-mail at [e-mail].