Straddling the Green Fence

It is perhaps too early right now to determine the long-term impact China’s “Green Fence” will have on the North American paper stock industry. However, in the short-term, the crackdown by Chinese customs officials on suspect shipments of recyclables is creating significant headaches for many exporters. Reports of a sharp increase in the number of downgrades and even large-scale rejections of shipments of many grades of recovered fiber continue as of early April.

A number of recyclers say inspectors have become more persnickety, with some sources saying that even minimal amounts of nonrecyclables in a container load can lead to the full shipment being rejected. For recyclers based in the U.S., a large rejection could cost thousands of dollars.

This heightened demand for quality fiber in China is resulting in significant changes to many companies’ business models. Several sources say one larger paper stock exporter that routinely shipped large amounts of recovered fiber to China has decided to stop shipping material to the country to eliminate the chance of rejections.

Also, according to some reports, single-stream MRF (material recovery facility) operators are slowing down their processing lines and adding more pickers in an effort to further clean up the fiber recovered through their systems for overseas shipment. While the slower pace likely will improve the quality of the packs being produced, some of these MRFs may have to contend with moving fewer tons.

Another exporter has reportedly made the decision to produce a soft mixed paper grade for shipment overseas. While the company says it feels it will be able to ship the material to China without difficulty, it will be at a much lower price than it has been shipping fiber historically.

Several U.S. mills are responding to China’s call for higher quality recovered fiber by tightening their own inspections and quality specifications, sources say. The pressure is growing for recyclers to spend more time and money to ensure that the paper stock grades they produce meet consuming mills’ quality standards.

In terms of domestic markets for mixed paper, one paper stock dealer says Pratt’s Shreveport, La., board mill, which has been one of the biggest domestic buyers of the grade, recently cut its prices. The move, the source adds, signals that quality will become more important if suppliers are looking to ship material to the mill. Pratt’s decision could have a significant impact on low grade markets during the next few months. The mill has earned the reputation for aggressively purchasing recovered fiber, paying top dollar for material when it was required and dropping out of the market when inventories were full.

Despite the decision to lower its buying price, another source says Pratt has seen its inventory decline and may be looking to boost recovered fiber purchases to meet its expected orders.

Despite the challenging offshore market, it looks like the outlook for most bulk grades, such as old corrugated containers (OCC) and double-lined kraft cuttings (DLK), is bullish.

Sources throughout the Midwest, South and Southwest all say they expect to see better markets for OCC during the next several months.

A Midwest-based paper stock dealer says that with the exception of office grades, most paper stock grades are primed to see better pricing and stronger movement.

Even Chinese consumers could start to ramp up their recovered fiber orders as they look to replenish supplies. “China is showing some resurgence and is starting to pull more OCC,” the source in the Midwest says.

Several sources say Cascades’ new recycled paperboard mill in the Niagara Falls area of New York state may be entering the OCC market in the Midwest, which could help firm up that grade throughout the region. When at full capacity, Cascades’ Greenpac mill will manufacture a lightweight linerboard, made with 100 percent recycled fiber, and have an annual production capacity of 540,000 tons.

The slump in office paper markets is a bit of a curiosity, according to sources. With the tissue sector, one of the few areas in the paper industry expected to show growth, the downturn in office grades and coated book stock has taken a number of paper stock dealers by surprise. One source speculates that some tissue mills are starting to add more pulp to their mixes, which is reducing demand for recovered fiber.