Paper Recycling Supplement - Committed to Paper

One consistent component of China’s manufacturing boom has been the need for boxes and other forms of packaging in which to ship finished goods.

Even though China’s manufacturing growth has shifted or spread out into new segments—from toys and textiles to consumer electronics and appliances—through each step of the evolutionary process the need for boxes has come along for the ride.

The need for the proper packaging for China’s goods to reach the rest of the world has created tremendous opportunities for the makers of containerboard grades, and Lee & Man Paper Manufacturing Ltd., was formed in 1994 to take advantage of that opportunity.

With confidence that demand for its product was strong and rising, the company and its CEO Raymond Lee were able to plan big, with the company’s first plant in Dongguan in southern China soon churning out 650,000 metric tons per year of containerboard.

That plant has since been joined by another in Changshu, closer to the booming city of Shanghai, that was churning out more than 550,000 metric tons annually by the end of 2004. Additionally, the company is modernizing and expanding its presence in Dongguan with the opening of the Hongmei plant, which will soon house three of the Lee & Man’s newest and highest-volume paper machines.

According to Ross Li, executive director and assistant general manager of Lee & Man Paper Manufacturing Ltd., the company has continued to add paper machines at both of its coastal China locations while also breaking ground on a new mill location in Chongching in central China.

Capacity has been added at both plants as China’s economy and demand for containerboard has boomed unabated. "Demand is really great," says Johnny Tse, operations manager for the Lee Kwok Trading Ltd. arm of Lee & Man.

The company has a total of 11 paper machines running or planned at its three existing mills in China.

The booming demand allows Lee & Man to pour capital into its expansion projects—building new mills in less than a year and installing new paper machines on six-month schedules—while knowing it will quickly recoup its investments.

The mill complexes are substantial properties that include much more than the papermaking lines alone.

The company’s Changsu mill includes its own coal-fueled power plant, a water treatment plant, a harbor facility on the Pearl River, surrounding bamboo plantations to help yield pulp and fiber, and a large warehouse area to store the bales and bales of scrap paper that arrive to provide the pulping stock for the majority of the company’s fiber needs.

Li estimates that only 10 percent to 15 percent of the company’s fiber needs are met by wood pulp and other forested material, while the rest of its feedstock is scrap paper, with the old corrugated containers (OCC) grade being by far the most prominent.

With scrap paper providing 85 percent to 90 percent of Lee & Man’s raw materials, the company’s operating and trading philosophy is based around recovered fiber on the supply side.

At all of its massive mill complexes, receiving, storage and sorting areas for incoming bales of OCC and other recovered fiber grades are an integral part of the operation.

Li estimates that as of mid-2006 about 60 percent of its secondary fiber is being sent from North America.

He says Lee & Man appreciates the quality of North American OCC, both in terms of fiber length and lack of contaminants. The company has long had a trading arm in the United States, Ralison International Inc., Diamond Bar, Calif., to procure fiber on its behalf.

In order to feed its increasingly hungry stable of paper machines, the company has also established Mark Lyndon International B.V., based in Rotterdam, to obtain more recovered fiber from Europe as well.

"We’ll more or less try to keep the North American percentage at 60 percent," says Li. "We want to keep our good balance of a mix from throughout the world. North America has the best fiber but also the highest prices," he notes, adding that the North American and European markets both have "strengths and weaknesses."

While demand for containerboard to make boxes for everything ranging from backpacks to microwave ovens continues unabated, the bigger challenge for Lee & Man can be finding the raw material to feed the front end of its production lines.

Li says that finding enough raw material to feed its plants in 2007 is "definitely a challenge."

Traditionally, Lee & Man has not been active in procuring domestically generated material, in part because average fiber length is not as good and also because domestic recyclers may not make bales with the same quality as experienced recyclers in North America or Europe.

But as the company continues to grow and as China’s domestic fiber sources improve, Lee & Man may well begin to expand its presence in the domestic scrap paper market. "It’s a very interesting topic," says Li.

He says that among the two ways Lee & Man could do this would be to either become a collector and packer within China itself, or it could rely on existing local Chinese recyclers. As of right now, Li says the company is more inclined to rely on existing companies. "It may not be cost-effective for us to take part in OCC collection in China," says Li.

In terms of working with existing recyclers, Li says that the company’s "network is improving, but not well established." Part of the problem, he says, is that existing recyclers are used to collecting and shipping smaller quantities to government-controlled mills that may not have the same quality standards as private companies such as Lee & Man.