ISRI2018: Staying ahead of China

Pictured above, from left: Greg Rudder, Leonard Zeid, Ketan Mamtora and Bernie Lee.

China’s Blue Sky initiative to clean up its environment and limit the import of materials shipped into the country has “really changed the landscape of paper,” said Leonard Zeid, vice president of the Paper Stock Industries (PSI) Chapter of the Institute of Scrap Recycling Industries (ISRI), at the association’s annual convention, ISRI2018, held April 16-19 in Las Vegas.

Zeid, who manages paper trading at St. Louis-based Midland Davis Trading, addressed attendees in the Spotlight on Paper session as the moderator, where he and speakers discussed how to stay ahead of China’s changes.

Speaker Ketan Mamtora, vice president of packaging and forest products research at BMO Capital Markets, Toronto, focused on containerboard. As the largest commodity in the paper and packaging sector, Mamtora said most of the growth in global containerboard capacity in the last three decades has derived from recycled fibers. It has been a couple of decades, he said, since any new virgin mills have opened in the U.S.

“As recycled content capacity has grown, the draw on recycled paper also has,” Mamtora said. “Historically, OCC (old corrugated containers) prices go up when containerboard demand is strong.

“However,” he continued, “there has been an interesting divergence in the last several months.”

Prices for secondary fiber grades in the U.S. average about half per ton what they sold for a year ago, said speaker Greg Rudder, lead editor at Boston-based RISI’s PPI Pulp & Paper Week. He spoke to what he called “monumental changes in this industry.”

At $74.50 per ton, OCC pricing is less than half its April 2017 price point of $151.67, according to RISI’s April 5 P&PW Yellow Sheet. This price is close to what mixed paper sold for a year ago, when that grade averaged $73.06 in April 2017. At $3 per ton in April 2018, mixed paper pricing has substantially declined.

Pricing for the major secondary fiber grades traded domestically dropped across the board for OCC, mixed paper and sorted residential papers and news (SRPN), by a range of $5 to $20. Sorted office paper (SOP) saw the only gains, increasing $10 per ton in every U.S. region sold. Like last month, mixed paper and SRPN sold for the same price per ton FAS (free alongside ship, meaning the seller must deliver goods to a named port alongside a vessel the buyer designates) to Asia.

(Rudder noted that RISI has made several changes to its reported export pricing: the destination of mixed paper assessments has been changed to Asia from China. As of April 2018, the destination of SRPN assessments was changed to Asia from China.)

In China, OCC pricing is vastly different than in the U.S. “The price for local OCC in China is very, very high,” Rudder said. “We see it as a crisis that’s going to happen rather than one right now.”

Rudder questioned how China will be able to find enough fiber for its paperboard capacity. With 2018 recovered paper imports into China down to 4 million tons to 6 million tons, Rudder said this is a 10 million ton to 12 million ton shortfall.

To emphasize this shortfall, he showed a PowerPoint slide outlining U.S exports to China as well as to what Rudder calls the “Asia-6” – India, Indonesia, South Korea, Taiwan, Thailand and Vietnam: From September 2017 to February 2018, the U.S. shipped 680,290 metric tons of recovered fiber per month to China, a 38 percent drop from that same period one year earlier when 1.104 million metric tons were shipped to China. Conversely, the U.S. exported 506,953 metric tons of secondary fiber to the Asia-6 from September 2017 to February 2018. This is an 88 percent increase from the 269,625 metric tons exported to the Asia-6 in the same period one year prior.

“Fifty-six percent of China’s reduction year over year was picked up by the Asia-6,” Rudder said. “Where will they be six months from now?”

India will become a bigger buyer, Rudder said. Vietnam also will become a more prominent export market for U.S. recovered paper.

Back in the United States, Rudder forecasts that now through 2022, 5.727 million short tons of new containerboard capacity will come online in the U.S. “I don’t have the breakdown for recycled content,” he clarified.

Yet, Mamtora said for supply, it is not simply about adding containerboard capacity. “What has become more critical has been finding homes for these tons,” he said. “If the cost outlook is more favorable, does that incentivize more recycled containerboard capacity in North America?”

Mamtora asked whether the change in OCC dynamics results in an impetus for more cost-based contracts.

With box shipments in the U.S. up 1.7 percent, Rudder said packaging growth is forthcoming.

The challenge, Mamtora said, is to get more people to recycle more of this packaging. “Simply being recyclable is no longer enough,” Mamtora said. “Pressure is mounting to reduce packaging waste and ensure recycling occurs.”

ISRI2018 was April 14-19 at the Mandalay Bay Resort and Casino in Las Vegas.