PPRC 2022: Mill buyers discuss supply challenges in current market

Mill buyers from across North America during the closing panel at the Paper & Plastics Recycling Conference in Chicago on Oct. 20 shared their perspectives on the challenges of the current recovered paper market and how their businesses have been impacted since the onset of the coronavirus pandemic.

Bill Moore, president of Moore & Associates, facilitated the discussion with Johnny Newsome, director of global mill supply and trade at Sonoco; Stephane Dube, vice president of supply chain at Cascades; Bill Theado, director of group fiber procurement at Greif; and Brian Owen, fiber manager at Inland Empire Paper Co.

“The best mill buyers are what I call ‘supply developers,’ which is a real skill to be able to work the market to get new tons out there,” Moore said in his opening remarks. “The lowest-cost [recycled] fiber mills in North America, people work on, no matter what the pricing cycle is, they work on supply development.”

He added, “It takes time, and there’s a real lag from doing the work to getting the results frequently. It’s easier in soft markets to do supply development and the payoff’s like an annuity—once you get a good supply in the right place at the right freight [rate] and the right quality and you get that locked up, every year you get those savings on quality and cost and freight.”

The conversation focused much on the current old corrugated containers (OCC) market as prices for bulk grades continue to plummet across the United States, as well as the tight supply on the sorted office paper side, both of which have impacted each panelist.

Newsome said Sonoco manages approximately 2.6 million tons annually across all its facilities, with 70 percent of that consisting of OCC. “Our recycling division provides fiber supply security for our 13 paper mills with 20 paper machines [that] produce 1.5 million tons of paperboard a year,” he said.

According to Dube, Cascades controls approximately 2 million tons per year of brown grade fiber and 200,000 tons per year of tissue grades. He said the company’s tissue division, in particular, has faced challenges because of the scarcity of tissue-grade fiber in the market. “The white grades are very expensive and gradually decreasing like the snow under the sun,” he said.

Inland Empire Paper Co. primarily uses virgin fiber as its feedstock—about 75 percent—but Owen said the company is always looking for ways to innovate, especially as a newsprint producer. The company purchased its own freight line, including 22 over-the-road trucks, and Owen said it decided to go to its press rooms and help install balers. “In turn, when we show up and bring finished product, we’re going to then reload the trailer with recycled paper and bring it back home,” he said.

Despite consuming primarily virgin fiber, Owen did stress the importance of recycled paper to Inland’s newsprint operation. He said wood fiber alone doesn’t give the finished product the strength it needs, adding, “If you get that wet, that thing’s going to deteriorate pretty quickly. That’s…why we need recycled fiber, because there’s products out there, there’s high-grade products, that we need a little big more strength from.”

“In our mixture, even though we’re making normal newsprint, we’re going to add 20 [percent] to 30 percent from the recycled side to strengthen our sheets. That’s what’s helped us make a little bit better newspaper than most traditionally.”

Theado discussed several ways Greif is dealing with the current supply-demand challenges, including trading with other mill groups to fulfill needs.

“The market is the market,” he said. “All the mills, [we] have to pay market price. We trade with our partners, whether independent recycler or whether other mill groups.

“Freight is the key cost to control where there’s no other real controllable. And, yes, freight costs escalate, but if we have tons close to Johnny’s mills, we’ll trade tons; will sell the tons to Johnny and we’ll buy some tons from him. We have a lot of partners across the country and we need that because our mills consume about 1.8 million tons a year. Our fiber basket in our group is about 3.5 million tons.”

With many North American mills reporting being full and unable to move tons, one concern raised by the panel was safety and the measures being taken to protect those working in facilities with high inventory levels. It also creates more pressure to move supply if safety precautions hinder operations.

“Obviously the market has changed,” Theado said. “Inventory is everywhere, whether it’s a [recycling] plant or a paper mill.”

He said Greif does not allow anyone to walk into bale yards because of stacking and that the company has been challenged to lower inventory “because it’s just stacked too high everywhere.”

“We’re at maximum level right now with our paper mills,” Theado said. “We really, really have to watch how we pyramid stack, and it’s challenging.”

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Dube said that Cascades implemented a safety alarm to address similar inventory and safety concerns. As soon as inventories reach a certain level, people within the company are notified and the priority for that facility is to move the stock out. “It did happen in the past few months where we’ve had to either slow down production or stop it until we can move the loads out,” he said.

On the mill side, Cascades also has safety protocol for when inventory reaches maximum levels.

“We have a strict process of stacking the bale,” Dube said. “We also put a [minimum] and a [maximum] in the mill, so our guys need to manage inventory. … It’s almost a contract signed with the plant manager that the mill-buying groups will not exceed that maximum capacity. We’ll divert loads, we’ll do something else or they’ll push back the truck. … That is what keeps us in the safe zone in terms of managing that inventory.”

When it comes to the evolution of the recovered paper market since the onset of the pandemic, all the panelists agreed one of the biggest changes has been the deterioration and rebuilding of industry relationships.

“When COVID first started, there was an immediate drop in business all around the world…and one of the reasons why Greif recycling handles than more tons than our mills consume is to have that hedge or that buffer and pull those tons in,” Theado said. “But we had commitments to trade mills, also, so there was a lot of supplier and customer damage done at the start of COVID. It took time to rebuild as the supply came back and we had to hug a lot of people to get the relationships back going.”

Owen agreed, saying, “Zoom negotiations—that was something that was quite foreign to most buyers. Anytime you talk about money, you talk about it across the table from somebody, and so that was a big difference was relying on technology.”

While supply has changed drastically among various recovered paper grades, Dube said demand has also shifted since the start of the pandemic. He noted Cascades containerboard division was “super, super oversold” as e-commerce spiked during the COVID-19 shutdown and the company was having to refuse customers on the box side of its business. “But guess what happened now with the crisis that we’re in?,” he said. “This is why the price is going down because we’re taking downtime. We’re not as busy as we were. … [There were] a lot of changes in the demand for us that created a huge impact at the end of the day.”

Newsome added, “Now, I think what we're seeing is some backlash from artificial ramp-up from a pandemic, which just put us in a very tough market today.”