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North American Recovered Paper Price Methodology

RISI publishes two separate price estimates for the North American recovered paper market. One, which traditionally has been published in World Recovered Paper Monitor, reports a single point estimate for the prices of major grades of recovered paper in North America. The other, traditionally published in Pulp & Paper Week, is a range estimate (high and low, which are occasionally the same) within which the large majority of transactions are believed to have occurred. This document describes the methodology used for these price estimates—herein referred to as the Point Estimate (PE) and the Range Estimate (RE).

The PE and RE surveys were developed independently when the respective publications were published by different companies. Going forward, news editors and economists will share and compare information regarding survey results, thus increasing the amount of information used to determine both the PE and the RE. This sharing of information will be limited, however, in cases in which a confidential relationship exists between the surveyor and a respondent. The RE survey is conducted by news editors associated with Pulp & Paper Week. The PE is set by economist associated with World Recovered Paper Monitor, based on all of the information collected as part of the RE survey, plus additional survey information gathered independently by the economist.

Determination of Point Estimates and Range Estimates

All price discovery methods, no matter how statistically rigorous they claim to be, run the risk of being "gamed" or undermined by survey responders, through means such as selective reporting of transactions or misreporting of prices. Even a process that is based on a weighted average of actual invoices can be manipulated if respondents report transactions selectively (that is, non-randomly).

RISI's price estimation methodology addresses this problem in two ways. First, prices are collected from both buyers and sellers in an attempt to balance out potential bias from respondents. Second, our methodology allows the news editor or economist who is doing the survey (hereafter, "the surveyor") a small degree of latitude to supplement the survey results with other information in order to arrive at the price that best represents market conditions. The surveyor, for example, can use his or her best judgment in assigning more weight to responses from those survey participants who have been the most reliable sources for pricing in the past. That the surveyor is allowed judgmental latitude in estimating prices is an especially important point to note for the PE survey—point estimates are not arrived at using a fixed calculation or weighting scheme. (Larger transactions are given more weight than are smaller ones, however, which is consistent with the concept of a weighted average.) Application of expert judgment based on years of reporting on and studying these markets has been one of the keys to achieving the quality and acceptance of RISI's price estimates.

Where survey information is limited due to small size of the market, or when there are substantial conflicts in the information provided by survey respondents, the surveyor may factor non-survey information into the estimate. Such information can include current supply and demand fundamentals, historical relationships between product prices over time, and information as reported by companies to the media or in financial reports.

Revisions to the prices are made infrequently, in the event of new information becoming available or when there is an ex-post revision or adjustment to prices by the parties.

Survey Procedure

Upon joining the survey pool, a respondent is asked to disclose the specification of the grades that they actively buy or sell, the average volumes involved, and the nature of the transactions that they engage in (spot or contract, indexed or open market). This information is used by the surveyor to put the respondent's responses into perspective and is updated periodically.

Most contacts with survey respondents are made by phone. Some are made by email. Participants in the survey include both buyers and sellers of recovered paper, including brokers.

The amount and type of information that a respondent provides each period varies across individuals and companies. In the ideal case, the respondent would provide a number of prices for various transactions that occurred during the month along with the volumes involved in each and any special terms. Most respondents, however, report a single average number or a price range for the time period for each grade of paper that they buy or sell. A small minority will report only changes in price level from the past period's value. All of these responses will be taken into consideration by the surveyor.

The mix of buyers and sellers varies by product, but an effort is made to adequately cover both sides of the market. The mix of buyers and sellers varies by material, but an effort is made to adequately cover both sides of the market on all of the recovered paper materials that are priced. The number of respondents varies by material but is always sufficient to determine a representative price for the month.

RE and PE prices are collected once per month in North America.

Key Differences in Transaction Specifications

"Transaction" price estimates reflect regular transactions between mills (and in some cases brokers), which are buyers, and sellers, which are processors of recovered paper and brokers, on regular size orders. In recovered paper, the transaction price is the price, at the f.o.b. seller's or dealer's dock, that a material is sold to a paper mill. All prices for all recovered paper materials are based on the f.o.b. seller's dock level and most are for standard quality recovered paper, based on the Institute of Scrap Recycling Industries (ISRI) specifications for recovered paper. Buyers and sellers determine their pricing for recovered paper on a monthly basis, based on supply of recovered paper and mill demand for recovered paper.

The RE survey covers f.o.b. seller's dock prices for recovered paper materials for five U.S. regions: Los Angeles/San Francisco (West Coast), Dallas/Houston (Southwest), Chicago (North Central), Atlanta (Southeast), and New York (Southwest). The dealer's dock prices in the PE survey are generated for the U.S. Northeast, Southeast, North Central, Southwest, and West Coast regions. Prices vary by region because of impacts from exports (primarily on the New York/New Jersey and Los Angeles/San Francisco markets or West Coast and Northeast markets) as well as available regional supply and mill demand.

Other Transaction Specifications

Arm's-length transactions: Only transactions between non-affiliated parties are included in the survey. To be included in the survey, a transaction must be conducted at "arm's length." Prices for internal transfers between units of a company, such as one company mill buying recovered paper from one of its company's own recycling plants, are excluded from the survey.
Baled paper: All pricing is based upon baled (2000 lb.) ISRI material and does not include pricing for "non-spec" or loose material. Mills may specify their own specs for baled material, which may differ from ISRI standards. In addition, some mills may purchase spec material, but in a loose format, such as old newspapers/magazines sourced from drop-off locations or shredded material from a document destruction company.
Physical specifications: See Appendix.
Specification changes: These descriptions are of RISI methodology as of 2006. The prices series involved are up to 20 years or more in length. In the earlier years of these surveys, somewhat different specifications may have applied

APPENDIX: Physical Specifications (based on ISRI 2005 standards)

Pricing is usually based on 2,000-lb. loads or one short ton.

Soft mixed paper (1): Consists of a mixture of various qualities of paper not limited to as to type of baling or fiber content. Prohibitive materials may not exceed 2%. Total outthrows may not exceed 10%.

Boxboard cuttings (4): Consists of new cuttings of paperboard used in the manufacturing of folding cartons, set-up boxes, and similar boxboard products. Prohibitive materials may not exceed ½ of 1%. Total outthrows may not exceed 3%.

News (6): Consists of newspaper as typically generated from news drives and curbside collections. Prohibitive materials may not exceed 1%. Total outthrows may not exceed 5%.

Special news, de-ink quality (8): Consists of sorted, fresh newspapers, not sunburned, free from magazines, white blank, pressroom over-issues, and paper other than news, containing not more than the normal percentage of rotogravure and colored sections. This grade must be tare-free. No prohibitive materials are permitted. Total outthrows may not exceed ¼ of 1%.

Magazines (10): Consists of coated magazines, catalogs, and similar printed materials. May contain a small percentage of uncoated news-type paper. Prohibitive materials may not exceed 1%. Total outthrows may not exceed 3%.

Old corrugated containers (11): Consists of corrugated containers having liners or either test liner, jute, or kraft. Prohibitive materials may not exceed 1%. Total outthrows may not exceed 5%.

New double-lined kraft corrugated cuttings (13): Consists of new corrugated cuttings having liners of either test liner, jute, or kraft. Treated medium or liners, insoluble adhesives, butt rolls, slabbed, or hogged medium are not acceptable in this grade. No prohibitive materials are permitted. Total outthrows may not exceed 2%.

White blank news (24): Consists of unprinted cuttings and sheets of white newsprint or other uncoated white groundwood paper of similar quality. No prohibitive materials permitted. Total outthrows may not exceed 1%.

Hard white shavings (30): Consists of shavings or sheets of unprinted, untreated white groundwood free paper. No prohibitive materials permitted. Total outthrows may not exceed ½ of 1%.

Hard white envelope cuttings (31): Consists of groundwood free cuttings, shavings, or sheets of unprinted, untreated, and uncoated white envelope paper. No prohibitive materials permitted. Total outthrows may not exceed ½ of 1%.

Sorted office paper (37): Consists of paper, as typically generated by offices, containing primarily white and colored groundwood free paper, free of unbleached fiber. May include a small percentage of groundwood computer printout and facsimile paper. Prohibitive materials may not exceed 2%. Total outthrows may not exceed 5%.

Sorted (postconsumer) white ledger (40): Consists of uncoated, printed, or unprinted sheets, shavings, guillotined books, and cuttings of white groundwood-free ledger, bond, writing, and other papers that have similar fiber and filler content. Prohibitive materials may not exceed ½ of 1%. Total outthrows may not exceed 2%.

Manifold (preconsumer) colored ledger (39): Consists of sheets, shavings, and cuttings of industrially-generated printed or unprinted colored or white groundwood-free paper. All stock must be uncoated and free of nonimpact printing. A percentage of carbonless paper is allowable. Prohibitive materials may not exceed ½ of 1%. Total outthrows may not exceed 2%.

Manifold white ledger (41): Consists of sheets, shavings, and cuttings of industrially-generated printed or unprinted white groundwood-free paper. All stock must be uncoated and free of nonimpact printing. Prohibitive materials may not exceed ½ of 1%. Total outthrows may not exceed 2%.

Computer printout laser (42): Consists of white groundwood free paper in forms manufactured for use in data processing machines. This grade may contain colored stripes and impact or nonimpact (e.g., laser) computer printing, and may contain no more than 5% groundwood in the pack. All stock must be untreated and uncoated. No prohibitive materials permitted. Total outthrows may not exceed 2%.

Coated book stock (43): Consists of coated groundwood free paper, printed or unprinted sheets, shavings, guillotined books and cuttings. A reasonable percentage of paper containing fine groundwood may be included. No prohibitive materials permitted. Total outthrows may not exceed 2%.

Coated groundwood sections (44): Consists of printed, coated groundwood paper in sheets, sections, shavings, or guillotined books. This grade may not include news quality groundwood paper. No prohibitive materials permitted. Total outthrows may not exceed 2%.

Printed bleached board cuttings (45): Consists of groundwood free misprint sheets and cartons of bleached board, free from wax, greaseproof lamination, gilt, and inks, adhesives or coatings that are insoluble. Prohibitive materials may not exceed 1%. Total outthrows may not exceed 2%.
Note: This material comes in two types: heavily printed and lightly printed. Both are at the No. 45 grade specification.

Unprinted bleached board (47): Consists of groundwood free unprinted, untreated bleached board cuttings, sheets, or rolls, free from wax, greaseproof lamination and adhesives or coatings that are insoluble. No prohibitive materials permitted. Total outthrows may not exceed 1%.