Above, from left: D.J. VanDeusen of WestRock, Hannah Zhao of RISI and Thijs Cox of Ciparo BV
As China’s scrap paper market becomes more insular, other areas of the world will increase their capacity to use recovered paper, according to speakers during the session titled OCC and the Future of China’s Paper Business, which took place Friday, Oct. 19, during the 2018 Paper & Plastics Recycling Conference in Chicago.
Hannah Zhao, senior economist, recovered paper, at Boston-based RISI, said China’s mixed paper ban was announced in July 2017 and took effect at the end of that year, while the 0.5 percent contamination threshold took effect at the beginning of 2018. Later in the year, China introduced a 25 percent tariff on U.S. recovered paper and pulp. These factors lead to a nearly 50 percent drop year over year in Chinese imports of recovered paper from the U.S. through August. OCC and mixed paper imports declined the most, she said, with OCC imports falling 40 percent.
One-third of China’s recycled paper demand has been supplied by imports, Zhao added.
D.J. VanDeusen, senior vice president of recycling at Atlanta-based paper and packaging company WestRock, said it was his company’s belief that the recovered paper import restrictions China has introduced “are not going to change any time soon.”
Of the 8 million tons of recyclables WestRock managed, only about 15 percent were exported, he said. While China’s policy changes have had a limited direct effect on WestRock, the company is feeling the ramifications in terms of the wider recovered paper market. VanDeusen said China consumes one-third of the world’s recovered fiber, with more than 40 percent of its supply coming from outside of the country.
Zhao said an easing of China’s import restrictions on recovered paper would not be likely and turbulence in China would present great opportunities for the pulp and paper industry outside of China.
The recovered fiber that is moving to China now, namely old corrugated containers (OCC) from retail sources and distribution centers, traditionally was sold within the U.S. That leaves OCC that is recovered through residential material recovery facilities (MRFs) for use in the U.S. market, VanDeusen said.
“MRF OCC and mixed paper are plentiful, and quality is improving,” he said. “Traditional supply chains for grocery/retail material are being challenged due to entry of China demand. U.S. mills have gotten accustomed to consuming this material, and that is changing.” VanDeusen added, “The foundational volumes that were going into U.S. mills is challenged.”
Thijs Cox, sales manager for Ciparo BV, Rotterdam, Netherlands, said the European recovered paper market was pretty much in balance except for France and U.K., where they have single-stream recycling. “We don’t have the problem that our mixed paper cannot go anywhere.”
He said China had been importing roughly 30 million metric tons from Europe over last three years; however, that figure went to 14 million metric tons so far in 2018.
Cox said import licenses in China declined by 48 percent through August to a total of 14.33 million metric tons. He added that 67 mills got licenses and that the largest share went to Chinese containerboard companies.
Domestically collected OCC in China has become very expensive and the demand and supply balance has tightened, Zhao said. China’s domestic OCC is also of a lower quality than imported OCC.
She said many constraints affect how quickly China can increase its internal collection of recovered fiber. Chief among those is that much of the paper packaging material produced in China leaves that country.
A number of small and midsized paper companies in China were not issued recovered paper import permits, Zhao said. Without these permits, these companies have had to rely exclusively on expensive domestic OCC as furnish for their mills.
To fill the void created by recovered paper imports, Zhao said Chinese mills have tried to buy more virgin pulp and recycled pulp. She noted that recycled pulp imports to China grew by 1,817 percent so far this year to 230,000 metric tons and that some Chinese paper companies have plans to invest in recycled pulp lines outside of China. Zhao said nearly 5 million tons of recycled pulp capacity will be coming online outside of China over the next five years, but she was not sure where and when.
Outside of China, other Asian countries were able to import much more recovered paper from North America. Some of the paper lines in these countries were converted to make recycled pulp, which was sold to China. China’s policy presents a lot of opportunity for this region, Zhao said.
The growth of e-commerce has changed the economics of recycling in the U.S., making local recovery programs critical to recovering those boxes, VanDeusen said.
He predicted growing demand for recovered fiber in the U.S. “Based on the investments being made in U.S., the resurgence is not so far down the road that we can’t see it.”
Five million to 6 million tons of additional mill capacity also have been announced in Europe, Cox said. India also has increased its buying not just for paper production but also for recycled pulp production geared toward the Chinese market. He said Bangladesh and Thailand also were active consumers of recovered fiber from Europe.
Nine Dragons and Lee & Man have reported record profits that they are investing in capacity outside of China, he said. However, ox added that recycled pulp doesn’t make sense for the environment because the material needs to be dried twice, which comes at “enormous environmental costs.”
Cox added, “I don’t think we are shipping our garbage to China. We collected waste paper, and we cleaned it up and shipped it to China.” He said the primary reason the Chinese government has stopped scrap imports is because it wants to use internally generated material.
The 2018 Paper & Plastics Recycling Conference was Oct. 17-19 at the Marriott Chicago Downtown Magnificent Mile. Next year’s show will be Oct. 23-15 at the same venue.