Exports remain key factor in supply/demand; mixed use grows as mills opt for supply flexibility

Recovered Paper Usage Up, Costs May Be On The Rise Too

Figure 1: Waste paper recovery continues to rise.

Prices for most grades were moderate into the second quarter but price increases are expected for some grades in second half 1999. In the future, a likely trend to watch will be the rising use of mixed wastepaper as mills tap into this lower- quality, lower-cost furnish as a means of controlling fiber costs driven by rising prices for grades like old corrugated containers (OCC).

MILL USE CONTINUES EXPANDING. U.S. mills used 35.5 million short tons of recovered fiber in 1997 to manufacture paper and board (Table 1).

Estimates for 1998 place use at 36.6 million tons and projections indicate recovered paper consumption should exceed 39 million tons by 2000. The largest gains over the 1997-2000 period, as has been the case in recent years as well, are projected for paperboard mill use, driven in large part by use in containerboard. In the paper sector, newsprint and tissue demand growth will account for most of the gains.

A look at major U.S. recovered fiber projects (Table 2) illustrates that growth in demand from new mills is slowing, as new machine installations are limited. In Canada, major projects include one by Bowater, who is expanding deinked pulp (DIP) capacity by 100 mtpd up to 550 mtpd at its newsprint mill in Thunder Bay, Ont.

Full year data (currently available through 1997) illustrate the steady growth in use for both domestic and export markets (Chart 1) over the last two decades. Exports have remained fairly steady as a portion of the total, and have even slipped some since 1995. Grade by grade use over the same period (Chart 2) illustrates growth in mill demand by wastepaper grade has been widespread.

Figure 2: Exports share of waste paper recovery

Traditionally, the highest use of recovered paper is by tissue producers and, of course, recycled paperboard mills. In tissue, for example, use can account for nearly 80% of fiber needs. The level in containerboard and newsprint has risen in recent years, and now approaches 45% to 50% levels. Demand by the large printing and writing paper sector, while rising, remains low, due to economic and quality barriers that limit use.

U.S. recovery rates continue to rise, and should approach 70% for old newspapers (ONP) by 2000, according to estimates by consulting firm Moore & Associates. The content of recycled fiber in U.S. newsprint (both U.S. and Canadian produced), will reach 28% by 2000, Moore projects. Recovery and usage rates continue to be much higher in other regions. For example, in Europe, newsprint recycled content is already over 45%, and is projected at 50% by 2000.

Supply and economic (i.e. fiber cost) considerations are also driving changes in use via grade substitutions, noted Moore. For example, more OMG is being used in newsprint, since it aids flotation deinking and also provides bleached kraft fiber. Mixed papers are finding wider use as this relatively under utilized source is used as an “extender” for higher-cost OCC.

U.S. EXPORTS. Recovery is driven by U.S. mill use as well as exports (net of wastepaper imports). Given the tremendous problems in the economies of Asia, exports to the region could have dropped precipitously last year. However, export declines to Korea, the region’s largest traditional importer, were offset by a surge of exports to China. Exports to members of the North American Free Trade (NAFTA) region, i.e. Canada and Mexico, also remained strong.

Total wastepaper exports rose 7.9% in 1998 to 7.35 million tons with a declared value of $753 million. The top three export destinations were (in million tons): Canada (2.18), China (1.0), and Mexico (1.1). Shipments to China were up by over 26%. Asia was the largest export market., slightly exceeding shipments to NAFTA. Exports to Asia (including India) were up 2% in 1998 to 3.4 million tons.

Over the next few years, export demand will continue to expand. For example, most of the board and newsprint capacity in Asia is based on recovered fiber. Moore estimates that about one-third of fiber source for Asian containerboard capacity is U.S. OCC.

GRADE BY GRADE TRENDS. Old Corrugated OCC use is expected to continue to expand but of course recovery rates are already high. A question of major importance to recycled mills is fiber quality and cost. As recovery rates rise this become more of an issue. OCC recovery rates last year were about 75%, and this is expected to increase to nearly 80% over the next 3 to 4 years U.S.-produced OCC is much in demand globally, since it tends to be the highest-quality fiber source. For example, ash and starch content for Asian OCC is much higher, meaning yields can be 10% higher for U.S. fiber.

The huge surge in new recycled containerboard capacity via new machines is history. However, despite recent mill closures, capacity continues to expand. Containerboard creep will expand capacity by 2% annually over the next five years, with most of this based on recycled fiber, according to Bill Moore, President, Moore & Associates. He also projects that OCC prices will rise in second half 1999 due to strong demand domestically and offshore. In general he notes, the price trend is up for most grades over the long term. An exception is mixed papers due to the abundant supply of this grade.

Substitution of mixed paper for other grades, notably OCC, is one trend to watch, observed Moore. In their OCC price forecasts, he notes that mixed paper substitution is a major variable they have to assess. Mills are looking to use cheaper mixed grades to control costs. An example is Willamette’s project at its Port Hueneme mill in Southern California, where a new stock prep system capable of running mixed waste will be installed. New containerboard mill projects such as Rebox and Solvay will have this capability as well. While large kraft liner mills don’t typically have systems capable of using large amounts of mixed waste, newer recycled mills often are built that can handle mixed fiber. Examples of this include Visy Paper’s Staten Island mill. The use of mixed grades is already more widespread in Europe and Asia.

ONP. The market for old newspapers also continues to expand due to several factors, including growth in both domestic and export demand. Demand is largely driven by increased use at existing mills, but it’s possible one new recycled machine could be installed in the U.S. However, much of North America’s growth in ONP use for newsprint will be due to shifts in fiber sourcing. Examples include conversions from existing stone groundwood capacity and kraft pulps. Stone groundwood could be converted to either recycled or TMP.

Donohue’s recycled fiber project at the recently acquired Sheldon, Texas mill illustrates another reason growth is expected in the future. The mill is located in what is considered to be a wood basket, Moore noted. However, the kraft mill will be shutdown, and fiber will be supplied by a 265,000-tpy boost in recovered paper demand. The company notes that it would have cost $60 to $80 million in environmental expenditures to meet Cluster Rule regulations. In general, noted Moore, this is indicative of a trend to watch, i.e. compliance cost considerations for kraft mills may lead to more conversions to recycled fiber. Just recently, Alliance Forest announced a similar project at Coosa Pines, Ala., where the hardwood kraft mill will be shutdown, and recycled capacity raised to 1150 tpd.

Mixed papers. As noted, a key trend is growing use of mixed papers as an extender for OCC. Traditionally the lower quality mixed grades are used in recycled paperboard. However, mixed papers encompass a variety of grades and quality levels. Mixed papers include higher-quality sorted grades, as well as mixed office waste, which can include groundwood and board grades. With recovery rates for mixed papers low compared to other grades, the potential for large increases in use is apparent.

Figure 3: Wastepaper use by U.S. paper and board mills by grade.

ENVIRONMENTAL REGULATION. In recent years government regulations have become less of a factor. In fact, in areas such as newsprint, content laws have lapsed but voluntary use continues to expand demand due to cost and wood fiber availability considerations. In addition, as noted above, recovered paper demand is also likely to receive a push from Cluster Rule compliance considerations. In summary, these rules have required most kraft mills to invest substantial funds to reduce effluent and eliminate chlorine use. Rather than spending money on process changes some mills have already opted to install recycled fiber capability. As noted by Moore, the example of a traditional newsprint mill that has three fiber sources, including kraft pulp, is likely to become a thing of the past. In addition, this trend may impact containerboard mills that run small bleach plants to produce white top grades, as they may choose to install a system to use recycled fiber for the white pulp source.

MARKET DIP MILLS. Problems in the beleaguered deinked market pulp sector continue, as many of the mills brought online in recent years struggle to survive, or simply have shut down, due to low demand for their pro-duct, and competitively price-fiber sources such as hardwood market pulps.

Use of DIP in printing and writing papers has failed to materialize. One problem they faced is the fact that hardwood pulp costs have not been as cost competitive as first envisioned. In addition, many of the facilities simply could not make the high-quality pulp needed for printing and writing paper use when deinking mixed office paper grades.

References:

1. Recovered Paper As a Fiber Source—Worldwide Substitution Trends, Bill Moore, Moore & Associates, Paper/Forest Products Global Outlook Conference, Miller Freeman Inc., November 1998.