Thin is in: from limited profit margins to narrower trading ranges, paper producers and recyclers are working in tighter quarters.
Although recovered fiber makes up a healthy percentage by weight of curbside, office and industrial recycling programs, secondary fiber supplies a paper industry that is competing against new forms of competition on all fronts.
This decade, the booming economies of China, India and a handful of other nations are helping to keep secondary fiber in demand, helping to offset relatively stagnant newsprint and boxboard industries in North America.
Additionally, improvements in information technology have made buyers of recovered fiber savvier about their purchases, as well as being willing to seek out fiber from markets both near and far.
TRADE GAP, Recyclers of scrap paper have seen a variety of noteworthy changes this decade, with the escalating demand from China probably being the most predominant and widely reported upon.
The increased Asian demand has a direct correlation with stagnant or declining North American demand, particularly on the boxboard side, where boxes are being made in China to ship goods that used to be made and boxed in North America.
From an operations and trading viewpoint, for many recyclers this has meant making new connections with East Asian companies and learning the ins and outs of trans-oceanic shipping and inspections procedures.
The good news is that such shipping can still be done profitably for recyclers, as indicated by the top-tier position scrap paper enjoys as a containerized shipping product moving from North America to Asia.
However, the export bonanza can yield questions as well as answers. To fill orders placed by large-scale Asian consumers, recyclers are under pressure to recover additional tons.
According to information presented by Moore & Associates, Atlanta, at the 2006 Paper Recycling Conference, these additional tons are becoming increasingly more costly to harvest.
In a workshop presented in coordination with the conference, Bill Moore and Peter Engel indicated that in the first quarter of this year, the estimated cost of recovering a ton of old corrugated containers (OCC) in North America had fallen behind the mill price for the secondary fiber grade. Such a situation cannot endure in the long run, Moore noted.
If North American recyclers hope to see prices bid up for secondary fiber commodities, that initiative will probably come from overseas. Newsprint production is declining in North America, as newspaper publishers strive to keep readers and, at the same time, downsize their sheet thickness and page sizes on a regular basis.
Moore noted that while newsprint mill operating rates in North America have been easing their way back up since a 2002 trough, this is largely because of shut mills being eliminated from the potential capacity roster rather than any increases in production.
On the paper recovery side, the high cost of collection can be attributed in part to the increased fuel costs being paid to keep trucks out on the road, and "getting to the next ton," which Moore remarked is always costlier.
Those high collection costs are making for trickier margins for many recyclers. In a global market where mill buyers consider currency fluctuations and regional price differences when making spot purchases, passing on higher gasoline or diesel fuel costs to a buyer can prove difficult.
GRADING ON A CURVE. For recyclers, one way to seek a better margin is to pay attention to secondary fiber grades that are trading at or above historic averages relative to other grades.
Recently, the mixed paper grade has been one such grade that has gained the attention of recyclers. As Moore stated about the grade at his workshop, "Every dog has its day."
Historically, the dog metaphor may be accurate for the mixed paper grade, but this decade the grade has gained in value steadily compared to the benchmark old corrugated containers (OCC) grade.
Information collected and complied by Moore & Associates shows mixed paper trading at less than 30 percent of the value of OCC less than 10 years ago, in 1998. The grade has subsequently gained ground in per-ton pricing relative to OCC, hitting a 70 percent value in 2004 and remaining above 60 percent since that time.
The willingness of Chinese mills to buy this grade and then undertake hand sorting with deep and affordable local labor pools is seen as the biggest reason why the mixed paper grade has thrived this decade.
For North American recyclers this has been a double dose of good news. While the increased sale price of mixed paper helps out their top line income, their relative lack of sorting and processing costs to produce the grade can also help overall bottom line results.
FLATTER WORLD. A trend that may be welcome by some recyclers is one toward less volatility in the pricing of secondary fiber.
Although there were some major per-ton price spikes and dips in both 2000 and 2002, the remainder of the decade has witnessed comparatively flat pricing movement, characterized by drifts rather than spikes.
Perhaps more remarkably, according to what Moore & Associates has tracked, is the harmony of regional and even global price movements. "That wasn't the case 10 or 15 years ago," Moore reminded attendees of his workshop.
Although regional price differences still exist, according to published pricing surveys, prices generally move in concert and, most commonly, per-ton price differences are commonly in the $3 to $11 per ton range.
The unified nature and open communication of secondary fiber pricing was also noted by Paper Recycling Conference keynote panelist Steve Voorhees of Rock-Tenn Co., Norcross, Ga., who cited the fact that prices are "readily communicated on East and West Coasts" as a factor in the workability of export markets.
Price transparency can reduce the risk in some transactions, but it can also tend to "reduce unit margins for basic transactions," according to Voorhees, making for potentially thinner profits for recyclers.
To see some hope in the smaller or flatter world that they now operate in, recyclers can take comfort in the continued boom in China and what may be just the beginning of a boom in India, the world's only other nation with more than 1 billion people.
The export surge to China is well underway, with recovered fiber shipments from the United States to China having zoomed from 2 million tons in 2000 to more than 7.5 million last year.
But in that same time span, shipments of scrap paper from the United States to India have remained relatively flat at around 500,000 tons per year. "I don't think we've really seen India take off yet," said Kevin Duncombe of Western Pacific Pulp and Paper, Downey, Calif, in an export-related session at the 2006 Paper Recycling Conference.
The potential of India's growth has attracted the attention of many segments of the economy, with the technology and back offices service sectors being primary examples.
In a presentation at this year's Institute of Scrap Recycling Industries Inc. (ISRI) Convention & Exhibition, Weyerhaeuser's Pete Grogan noted that India's more educated populace is reading more newspapers, magazines and is using more office paper as its economy develops.
Although the nation's demand for basic materials and secondary commodities has not soared to the extent that Chinas has, ISRI is asking its members to consider the possibility.
The organization has announced a trade mission to India that will be taking place in January of 2007. Unlike a similar event in 2006 that focused on the paper industry in China, the tour of India will concentrate on ferrous and nonferrous metals.
But should the Indian economy boom on the metals front, than in all likelihood a demand for paper products will be a part of the growth in that nation's economy.
At a presentation at last year's European Paper Recycling Conference, R.S. Baxi of J & H Sales International Ltd., London, said there are about 600 mills operating in India with a growing demand for secondary fiber that is expected to reach 9.3 million metric tons by 2015.
Baxi placed India along with China and other Asian nations among those that have experienced "continual growth over the last 10 years" in their scrap paper consumption.
That growing consumption "is being satisfied with imports," Baxi declared, as forestry is limited.
With India already being a leader in information technology, what paper recyclers can probably expect is a buying segment that will be well connected with the existing information grid that is part of a smaller world for the paper and paper recycling industries.
FEEDING THE PAPER DRAGON
As the manufacturing sector booms in China, record amounts of recovered fiber are being exported there to help produce the nation's hunger for boxboard and other paper.
A presentation by Ranjit Baxi of J&H Sales International Ltd., London, at the Paper Division meeting of the Spring 2006 Bureau of International Recycling (BIR) Convention detailed the jostling for Chinese scrap paper market share that is taking place.
In 2005, Western European shippers picked up an additional 5 percent of market share at the expense of North American exporters. But North America remained the No. 1 exporter of recovered fiber to China, with nearly 7.5 million metric tons representing 44 percent of the market.
But last year, Europe sent nearly 5 million metric tons, for a 27 percent share, up significantly compared to the 2.7 million metric tons Europe shipped in 2004. Japan and Hong Kong have held steady with a combined 23 percent market share, but the overall growth of Chinese demand still meant that an additional 1 million metric tons flowed from there.
According to figures gathered by Baxi, thus far in 2006 North American shippers have regained some market in what is proving to be yet another record year for paper making in China.
LAST CALL FOR BARCELONA
Advance registrations are still being accepted for the 2006 European Paper Recycling Conference, which will be held in Barcelona Sept. 25-26.
The conference, organized by the Recycling Today Media Group, Cleveland, provides recyclers and mill buyers from throughout the world a chance to network, trade and learn about paper industry and recovered fiber market conditions worldwide, with an emphasis on Europe.
The conference features an exhbiit area, where equipment manufacturers and service providers can interact with attendees, and a number of sessions touching on key issues in the recovered fiber industry. Session topics include:
* A keynote session on Europe's place in the recycling universe featuring remarks from Henri Vermeulen of the Smurfit Kappa Group and Dominique Maguin of Souiler/Veolia.
* "The Limits and Opportunities of New Supply Sources," featuring speakers from Germany and Spain.
* A roundtable discussion on mill buying featuring recovered fiber buyers from Spain, Sweden and Portugal.
A more detailed schedule as well as additional information and access to registration forms can be found at the conference Web site at www.paperrecyclingeurope.com.
The author is editor of Recycling Today and can be contacted at firstname.lastname@example.org.
Containerized Shipping Rankings: Exports to China 2004 Container Cargo Units Received by China COMMODITY CONTAINER TEUs * Recovered Paper 524,302 Mixed Metal Scrap 172,092 Cotton 94,439 Plastic Resins 77,285 Drugs & Chemicals 75,265 Plastic Scrap 49,959 Machinery & Parts 41,225 Wood Pulp 40,804 Lumber 32,053 Kraft Linerboard 28,417 * Twenty-foot Equivalent Units; Source: Moore & Associates, U.S. Department of Commerce