Well Furnished

Makers of paper, packaging and building products use a variety of materials as furnish for their production plants, with fiber coming from a combination of newly forested sources and recycled sources.

Without question, the collection of companies that makes up the forest products industry continues to rely on this dual stream of feedstock commodities: harvested timber, wood chips and other cultivated products (often from managed forests) as one stream, and recycled paper drawn from factories, offices, retailers and households as the other.

A visitor to the Web site (www.afandpa.org) of the American Forest & Paper Association (AF&PA) can recognize immediately that the emphasis is split between forestry and secondary fiber. Scrap paper provides more than one-third of the feedstock used to make paper and paperboard in the United States.

MAJOR COMMITMENT. The consumption of recycled fiber in North America has not been growing by leaps and bounds for the past several years primarily because overall paper production levels are flat.

For paper recyclers, the overall effects of this flatness have not always been dramatic because demand from China and other growing nations has, until recently, kept pricing strong.

In North America, recycled fiber continues to hold onto its overall market share as a source of pulping material, with scrap paper supplying about 37 percent of overall fiber needs at mills in the United States in 2004, according to the AF&PA. From 1997 through 2004, this percentage has remained relatively steady at between 35 percent and 38 percent.

Because U.S. mills are dependent on scrap paper for more than one-third of their feedstock needs, the AF&PA expends considerable effort promoting paper recycling efforts in the United States, offering program assistance setup and awarding leading recyclers each year.

The organization has made a visible commitment to increase the paper recycling rate in the United States from its current 50.3 percent to a 55 percent recovery rate by 2012.

Overall recovery trends have been positive in the United States, with the recovery rate having climbed from the 35 percent range in 1993 to the 50 percent range just 12 years later.

The paper industry’s most commonly consumed grades enjoy recovery rates far above 50 percent. Old corrugated containers (OCC) are now recovered at a rate ranging from between 72 percent and 75 percent each year. Old newspapers (ONP) are similarly recovered at an annual rate of above 70 percent.

The experiences of several European nations show that, with concerted effort (and sometimes abetted by packaging recycling laws and landfill taxes), paper recovery rates across the spectrum of grades can easily hit 55 percent.

Germany is estimated to be recovering 73 percent of its scrap paper each year, with The Netherlands and Scandinavian nations having similarly high recovery rates.

Recyclers in nations such as Spain and the United Kingdom, seeing healthy markets for recovered fiber in Europe and Asia, have also ramped up collection and are at or above the 55 percent goal targeted here in the United States.

In Spain, an association of papermaking companies (Asociacion Espanola de Fabricantes de Pasta, Papel y Carton, or ASPAPEL) is launching an educational and bin placement program to improve secondary fiber collection.

David Barrio, director of recovered paper for the Madrid-based group, told attendees of the European Paper Recycling Conference in Brussels in October of 2005 that ASPAPEL’s "Tu papel es importante" program has resulted in the placement of some 60,000 bins that help collect some 800,000 metric tons per year of scrap paper.

The Spanish paper industry wants to help collect the 2 million tons of post-consumer paper that ends up in Spanish landfills, said Barrio. "We can use that raw material in our mills."

The organization has a 65 percent recovery rate target for Spain in 2007. Barrio says the campaign targets schools in particular since students will be "recyclers of the future, and they will learn that paper is not waste."

It is unclear whether North American paper makers and recyclers, faced with little overall growth in domestic consumption, will take such measures to promote higher recovery rates on this side of the Atlantic.

STABLE OR STAGNANT? To many business analysts, "steady" can also equate to "stagnant," however. Although recyclers have been asked to supply considerable new mill capacity in China and other parts of Asia, as well as in some new mills in Europe, there has been very little new papermaking capacity brought online in North America this decade.

With the exception of a large new tissue mill in Barton, Ala., constructed by SCA Tissue NA (See "Green Thinking," Recycling Today, May 2005) there have been very few new mills built this decade. Rather, the overall trend has been toward the shuttering of smaller mills with perhaps some capacity growth at remaining facilities.

Among mill companies announcing recent plant closures is Canada’s Cascades Inc., which is closing a coated papers plant in Thunder Bay, Ontario, and has reduced capacity at a boxboard plant in Montreal.

Also in late 2005, Weyerhaeuser, Federal Way, Wash., announced the closing of a paperboard production line in North Carolina, and Canada’s Domtar Inc. announced several production cutbacks, including the closure of a printing paper mill in Ontario and the selling off of a mill in Vancouver.

The end-of-year announcements continued a trend that was evident throughout 2005, as the paper industry continued to carefully manage capacity even in an economy that otherwise seemed prosperous by many measures.

Also in 2005, Rock-Tenn Co., Norcross, Ga., closed a folding carton plant in North Carolina; Canada’s Norampac shut down a paper machine in Ontario; Weyerhaeuser idled a pulp and paper mill in Saskatchewan; Georgia-Pacific announced it would shut down a tissue converting plant in Maine; and Smurfit-Stone Container Corp., Chicago, announced plans to shut three containerboard mills in North America (two in Canada and one in the United States).

But while these capacity cutbacks may be signs that the industry is not in a growth mode, the news was balanced with occasional announcements of plant expansions as well, such as Kruger Co. subsidiary Scott Paper Ltd. expanding capacity at a mill in Tennessee. North American acquisitions by Pratt Industries, Conyers, Ga., may result in that company needing an additional 80,000 tons per year of recovered fiber.

To what extent North American paper companies have been operating more profitably as the decade has progressed depends on which company is being considered.

Weyerhaeuser Co. has reported profits in 2005, but the company announced what it considered disappointing third quarter results in October. Weyerhaeuser CEO Steven Rogel cited "difficult business conditions" caused by higher energy, chemical and transportation prices. Nonetheless, the company earned $285 million in profits during the three-month period.

Georgia-Pacific Corp. (GP), Atlanta, is in the process of being acquired by privately held Koch Industries. In one of its final public filings, GP reported third quarter 2005 income that was down from 2004 levels, but still enjoyed what GP CEO A.D. "Pete" Correll called "a solid quarter." The company earned $145 million in net income for the quarter.

The results of most diverse forest products companies, such as GP and Weyerhaeuser, indicate that lumber and building products markets could be more profitable compared to paper and packaging, especially industrial boxes.

Box maker Smurfit-Stone Container Corp. reported red ink for its third quarter of 2005, sustaining a net loss of $229 million. Unlike GP and Weyerhaeuser, the company does not have building and forest products operations to offset any papermaking losses.

Papermaker Cascades Inc., Kingsey Falls, Ontario, Canada, finished its third quarter slightly ahead of break-even, earning $3 million (Canadian). CEO Alain Lemaire remarks, "Cascades has managed to be cash-flow positive despite very challenging business conditions, characterized by increased foreign competition and lesser demand for certain of our products."

While some of these results are far from glowing, many paper company executives can look back to earlier this decade, when the red ink was more sustained and dramatic.

THE PAPER CHASE. Even though consumption of recovered fiber may be relatively flat for North American mills, this has not made things easier for mill buyers.