At its peak

A growing middle class in China and other parts of the world has been good for the paper and board industry in the past 25 years. A contrary force in the form of electronic communication supplanting ink on paper, however, continues to loom large.

In a keynote presentation at the 2014 Paper & Plastics Recycling Conference Middle East, held 4-5 March in Dubai, United Arab Emirates, paper and recycling industry consultant Bill Moore touched on these and several other major paper industry trends. Moore helped gather and organize information for a report titled “Outlook for Global Recovered Paper Markets,” which is offered by U.S.-based forest products information company RISI.

Moore, founder of U.S.-based Moore & Associates, noted that while papermakers throughout the world have tended to favor recovered fibre for cost, quality and availability reasons, several new variables may soon change that equation at many paper mills.
 

Dedicated demand

Globally, containerboard production has climbed through most of the 21st century, noted Moore. This was thanks in large part to China and developing regions of the world.

Between 1997 and 2013, paper and board production has been flat to lower in the developed world, drifting downward from about 220 million tonnes in 1997 to 210 million tonnes in 2013. Production in these nations is forecast by RISI to keep slowing in the next two years, falling closer to 200 million tonnes in 2015.

In the developing world, meanwhile, production has soared from about 75 million tonnes in 1997 to about 210 million tonnes in 2013. RISI sees production continuing to rise in the next two years, hitting nearly 250 million tonnes in 2015.

This demand for finished paper also has led to demand for recovered fibre. Throughout the developed world’s growth spurt, recovered fibre has retained and even grown its share as a percentage of mill feedstock. While it counted for about 44% of mill input in 2000, recovered fibre’s share has risen to nearly 50% as of 2014.

Moore said some 230 million metric tonnes of recovered fibre are now consumed annually. The types of paper mills consuming this fibre can be broken down in the following way:

• containerboard and/or corrugated products, 56%;
• newsprint, 9%;
• tissue, 7%;
• printing and writing, 5%; and
• other mills, 23%.

Beyond 2015, the world’s paper and board industry may face growth limitation factors in some sectors as will the recovered fibre industry’s ability to provide more than 50% of feedstock on an ongoing basis.
 

Fast-approaching factors

Longer-term forecasts for containerboard and tissue products retain some optimism, provided nations with developing economies continue to bring more people into urban settings and into a middle-class lifestyle.

These same factors historically have also led to greater newspaper, magazine and printing and writing paper use, though the rapid onset of electronic communication and invoicing may cause some developing nations to leapfrog over this stage entirely.

The developing world’s shrinking newspaper and magazine industries point to a struggle not only for these finished paper products but also for the recovered fibre grades tied to them.

A tightening of supply of the old newspapers (ONP), old magazines (OMG) and office paper grades already is causing some mill users of these grades to reconsider their reliance on recovered fibre.

“For the last several decades, recycled fibre has had a distinct cost advantage over virgin fibres for the production of newsprint, away-from-home tissue products, containerboard and recycled-content paperboard,” Moore told conference delegates.

This advantage is beginning to narrow, said Moore. “Increasing recovered paper costs over the next 10 years may change the cost advantage dynamic,” he stated, referring to “higher commodity cycle costs, lower quality, shorter fibres and nonfibre contaminants that lead to lower yields.”

The ability of China’s economy to shift from a streak of GDP growth tied in large part to infrastructure projects and its “workshop of the world” status to one with a household consumer and service sector-driven economy remains critical. Both in terms of global paper and board production and global demand for recovered fibre, China, India and the ASEAN (Association of Southeast Asian Nations) region have provided the story for the 21st century.

Current trade patterns reveal the extent of the recovered fibre sector’s reliance on this part of Asia’s paper mills, with developed portions of the world exporting recovered fibre tonnage there in the following amounts:

• North America, 17.9 million tonnes;
• Western Europe, 10.2 million tonnes;
• Japan, 4.4 million tonnes; and
• Australia and New Zealand, 1.6 million tonnes.

To what extent the developed world can continue to provide this excess tonnage or to what extent mills in China, India and the ASEAN region continue to crave it are the key variables affecting recovered fibre supply, demand and pricing.

Leading indicators

As in so many industry sectors, China’s economic health will be a key variable in the future of recovered fibre demand. According to Moore, the nation’s paper mills absorbed 71% of the recovered fibre export tonnage of the United States in 2012 and likely absorbed a similar or higher percentage from Japan and Australia.

China’s containerboard production has in particular made it the default destination for the OCC (old corrugated containers) grade.

If China’s demand continues unabated, containerboard producers in other regions may be more likely to seek virgin fibre sources, said Moore. “Over the next five-plus years, we may see unbleached kraft pulp be competitive with OCC, especially at the top of the pricing cycles in China. Another likely scenario is the use of additional virgin kraft pulp in place of some OCC in the U.S. Southeast,” he commented.

The tailing off of demand for newsprint and printing and writing paper remains an ongoing part of the global paper industry story. Demand has been spiraling in the developed world, while the emergence of a bigger middle class in South Asia and East Asia has helped protect global figures from greater decline.

“The world printing industry is stagnant at best and probably declining,” stated Mooore. “The world recession certainly had an impact on the printing business, but it is suffering from the structural trend of printing fewer hard copy documents.”

Paper recyclers can take comfort in the fact that containerboard and other packaging grades appear poised for growth in many parts of the world. More troubling, however, is the likelihood that a global shift toward electronic entertainment, news dissemination and less paper used in office places will make some grades more difficult to procure.

The author is the editor of Recycling Today Global Edition and can be contacted at btaylor@gie.net.