China cracks down

As the leaves began to fall, indicating the end of summer, so too did export volumes and pricing for recovered paper grades headed to China from the United States. The country introduced a proposed ban on certain scrap imports, including mixed paper, in mid-July, which has sellers seeking other avenues for this grade. Additionally, with the delay in reissuing import licenses in China, markets outside of that country that don’t have permitting issues are taking advantage of this opportunity.

The future is cloudy

China has been transparent in its desire for cleaner material. The country has expressed this through its campaigns to crack down on contaminants in incoming loads of recyclables and the proposed ban on specific scrap imports.

The Institute of Scrap Recycling Industries (ISRI), Washington, issued a letter Aug. 18 saying a ban on mixed paper would “devastate” recycling in the U.S. and globally and “result in the … closing of many recycling business throughout the United States.”

ISRI says China’s share of global recovered paper imports was 55 percent in 2016. Citing figures from the U.S. Census Bureau and the U.S. International Trade Commission (ITC), ISRI’s letter shows that the United States exported 37 million metric tons of scrap metal, paper and plastic commodities in 2016 worth $16.5 billion, with China importing 13.2 million tons of paper worth $1.91 billion of that total.

While sources say they are still selling bulk grades regularly into China, sending mixed paper is risky.

Aug. 24, China’s Ministry of Environmental Protection (MEP) released newly drafted limits on prohibitive materials in scrap shipments. The MEP draft proposes tightening the thresholds for “carried waste” (contaminants and prohibitives) to 0.3 percent for all scrap materials. Recyclers are questioning this 0.3 percent limit on contaminants.

In a separate letter to the MEP, released Aug. 25, ISRI states that if implemented, these standards could effectively prohibit scrap imports to China.

“It is simply not possible to achieve such a control level, nor is it possible to even measure it with such accuracy,” writes ISRI President Robin Wiener in the letter to the MEP.

The U.K.-based Recycling Association called the 0.3 percent limit “unrealistic.” The association criticized the proposal to lower the allowed contamination levels for imports of scrap paper bales into China and asked the Chinese government to reconsider the reduction.

A California-based exporter says what happens in China is anyone’s guess. “The future is really cloudy and gray; no one can really see,” he says.

Another California-based exporter who was contacted for this feature was in Japan in early September “in an effort to understand what’s going on in China,” he says.

An association in China also is seeking the government’s attention regarding the import restrictions. In China, the South China Morning Post reports that the Recycle Materials and Reproduction Business General Association, whose members collect scrap paper throughout Hong Kong, halted activities for five days in mid-September. The association’s Director Jacky Lau Yiu-shing says he and his members are working to find viable markets for scrap paper as a response to the restrictions, but he also told the newspaper, “If this issue is not solved by the end of October, the whole industry will come to a stop regardless. This will be several times more serious.”

Alternatives for mixed paper

Market prices for secondary fiber have slipped for some grades. Pricing for old corrugated containers (OCC), however, remains solid as sources predict demand for this grade will spike.

At domestic prices of $150.56 per ton for OCC and $59.72 per ton for mixed paper in September, the price spread between the two grades topped almost $100. Sources say with this kind of spread, more OCC will be pulled out of mixed paper loads. With less brown paper in it, mixed paper will get softer. A trader based in the Midwest says with less corrugated, the quality of mixed paper will lessen while demand for OCC will increase.

“China has to run something, and they’re going to increase the demand for corrugated,” says the trader. “Later in the year, corrugated [demand] will spike up further, and it will stay up because they have to replace mixed paper with corrugated and news.”

He predicts that while China says it won’t accept mixed paper anymore, it will “take what we call a dirty news grade, a No. 56 news on our new schedule.”

As the future for mixed paper exports to China becomes more uncertain, U.S. recyclers say they are developing alternative markets for the material.

The exporter on the West Coast says his company already is establishing other avenues for its mixed paper. He did not disclose those details, however.

“If it gets cheap enough, the other paper mills in the world will buy it,” the exporter says. “If OCC is going to be at one price and mixed paper is going to be much less than that, it’ll find its place. I’m just not sure China is going to be that place.”

Packaging picks up

Looking beyond China, sources say markets for tissue and linerboard medium will be relatively solid.

The packaging sector also is an area of growth for recovered paper. In the article “Prepared for packaging,” available at www.RecyclingTodayGlobal.com/article/paper-recycling-packaging-containerboard-2017, with a condensed version in the sidebar with the same title on page 45, Recycling Today Editor Brian Taylor outlines several investments in capacity and acquisitions tied to the packaging sector. These include an $80 million investment into the construction of a new containerboard packaging plant in Piscataway, New Jersey, by Canada-based Cascades Inc. and Norcross, Georgia-based WestRock Co.’s acquisition of Multi Packaging Solutions International Ltd. and certain operations of U.S. Corrugated Holdings Inc.

WestRock says it intends to integrate 105,000 tons of containerboard converted annually by the acquired facilities and another 50,000 tons under a long-term contract with a newly created company. There also was the May 2017 announcement by Australian Visy/Pratt Industries Global Chairman Anthony Pratt to invest some $2 billion to expand his company’s North American recycling, containerboard and box making operations.

Canada-based Kruger Inc. announced in early September that it plans to diversify operations at its Brompton mill in Sherbrooke, Quebec, and its Wayagamack mill in Trois-Rivieres, Quebec, into specialty niches, including flexible food packaging, labeling and digital printing. This move is an effort to “gradually reduce the production of some publication paper products that are in decline, such as newsprint and magazine paper,” the company says in a press release.

As these companies grow, sources point to a growing hurdle they are trying to figure out related to OCC and packaging: finding an economically effective way to collect corrugated from apartments and condominiums.

As North American dealers in the recovered paper sector figure out how to manage these changes, it’s a wait-and-see game with China and how its actions will affect a worldwide industry.

The author is associate editor of Recycling Today and can be contacted via email at mworkman@gie.net.