Paper recycling sector reflects on a year in flux

During the recycling markets plenary session at the Resource Recycling Conference last year, the Chinese ban on imports of key recyclables had been recently announced and was yet to be implemented.

Fast forward a year, and most of those questions on what China will do have been answered. During the markets session at the 2018 conference, held in St. Louis last month, paper stakeholders focused on the changes that have taken place and how the industry is reshaping itself to survive.

“One thing I think as an industry we’re very clear on is China is committed to the environmental policies they’ve put in place,” said DJ VanDeusen, senior vice president of recycling at WestRock. “And so now, the industry and the rest of the world are adapting to what they are looking for.”

Those changes include more MRF material staying in the U.S. and high-quality commercial OCC being shipped to China. Chinese investment in the U.S. has been another shift in recent months.

But VanDeusen, who moderated the session, noted that cooperation between different industry sectors has been another key shift, and one that indicates the depth of the market situation.

“The spirit of cooperation that we’re starting to see now is really refreshing, and I think it’s the critical piece of making this work,” he said.

VanDeusen was joined by three speakers from different sectors of the industry: Bill Moore of consultancy Moore & Associates, Scott Byrne of carton manufacturer Tetra Pak, and Brent Bell of Waste Management.

The group focused on the current and projected markets for various paper grades, and the speakers examined how China’s decision has led to worldwide changes in how recyclables are bought and sold.

“China may have started it, but it’s what all of our customers expect now: better-quality material,” Bell said.

Mixed paper problem boils over

Even before China banned mixed paper from import this year, analysts viewed the mixed paper market as bordering on oversupply.

Moore described efforts and discussions related to increasing domestic usage of mixed paper that have gone on for more than 15 years.

Now, after the market collapsed due to China’s ban, that trend is emerging, albeit not as fast as some suppliers would hope. In the U.S., investment has focused mostly on experimenting with small amounts of increased mixed paper use at existing paperboard mills, with a couple new mills that have been announced and are planning to accept mixed paper, such as a Pratt Industries mill in Indiana and a Green Bay Packaging mill in Wisconsin. Another small trend is companies looking into production of recycled paper pulp, which could potentially be shipped to China. Resource Recycling has profiled many of these investments and has mapped out the latest Chinese investments in U.S. recycling infrastructure.

In another trend, paper companies are opening facilities in Cambodia, Laos and other countries not traditionally known as paper manufacturing locations, Moore said. Much of that investment has been driven by Chinese companies, with the aim of processing North American-sourced mixed paper.

But despite the investment, the outlook appears poor for mixed paper.

China’s imports of mixed paper are virtually zero. Southeast Asian countries have ramped up imports, Moore noted, with some up 200 percent year-over-year. But these countries have smaller mills and process lower volumes. Many countries in the region have also responded to the influx of recyclables by implementing restrictions on imports.

U.S. mixed-paper exports have fallen off by 40 percent this year, Moore said, and without anywhere to send that material, MRFs and local programs are having to make difficult decisions.

“Our latest projection is that we’re going to landfill 500,000 tons of mixed paper that was collected for recycling,” Moore said.

Despite that glut of U.S. material looking for a home, domestic mill consumption of mixed paper is only up 1.2 percent this year, even with a major cost shift: Mixed paper was trading for $75 per ton in 2017, Moore said, and it’s currently hovering below $10 per ton.

That’s a “huge cost advantage,” Moore said, and it “shows how difficult it is to use the mixed paper that’s being produced in the market.”

The key barrier to using more is the non-paper contaminants, Moore said. But the quality is steadily increasing.

Huge hauler adapts

As the nation’s largest hauler, Waste Management has been in a prime position to observe recycling industry changes over the past year.

The ban and contamination policy “really put a lot of the recyclers and processors in a unique situation,” Bell said. Companies hurried to find alternative markets for mixed paper. On the contamination side, China’s higher quality demands have quickly been replicated around the globe, whether it’s a buyer in India or Atlanta.

“All those customers require higher standards now,” Bell said. “That’s just the new norm, that we’re going to have to make sure that our equipment and our people can process as we go through this.”

This emphasis has made its way into Waste Management’s operations in several forms, including equipment and other infrastructure upgrades at its MRFs. That has allowed the company to continue moving material, which is particularly important because many of Waste Management’s MRFs are small facilities without a great deal of storage space, Bell said. But the quality improvements haven’t translated into higher prices. Waste Management is now making the cleanest product it has ever produced, Bell said, and the company is receiving half the price it used to.

Part of that revenue struggle can be attributed to what Bell described as the “big three” costly materials for the company (mixed paper, glass and residue). Each of those materials was either a zero- or negative-value commodity at some point during the year.

“That adds up to nearly 65 percent of the material we collect at a given period of time in 2018 had a zero or negative value for the recycling stream,” Bell said.

As the company has stressed in the past, and even created an entire campaign to push for, Waste Management views cleaning up the stream as a key part of solving the current challenges.

“We’ve seen it come back from our customers, saying we need cleaner material,” he said. “And now we’re doing the same at Waste Management back to our customers, saying we absolutely have to have cleaner materials coming into these facilities.”

Growing market sector

Amid the depressed mixed-paper market, lower OCC prices and slow U.S. recovered fiber processing capacity, it’s easy to be dismal about the prospects for paper recycling. But that ignores a key market sector that’s seeing higher recovery and growing end markets, according to Byrne of Tetra Pak.

For aseptic and gable-top cartons, end markets are growing, access to recycling is growing, and recovery is up.

Cartons are made primarily from virgin bleached fiber, which Byrne described as “some of the best fiber in the stream.” Besides paperboard, cartons include layers of PE. Aseptic cartons add a layer of aluminum as an oxygen, light and odor barrier allowing transportation without refrigeration. There’s no wax used in either product, Byrne said.

Carton recycling has “never looked better in the U.S.,” Byrne said, with 62.9 percent of households having access to carton recycling. There are over 140 mills taking cartons worldwide, according to the Carton Council, the industry group Byrne is a part of that works to advance carton recovery.

Byrne said there’s an opportunity for fiber from cartons to replace other high-quality fiber that’s in decline, such as office paper.

Current domestic end markets include Great Lakes Tissue in Michigan, the Sustana Fox River mill in Wisconsin, the Continuus Material Recovery ReWall facility in Des Moines, Iowa. Byrne also pointed to an upcoming second ReWall facility in Colorado and the in-development Ecomelida facility in South Carolina. There are also two mills in Mexico accepting cartons collected from most of the U.S., Byrne added.

Carton end markets are diverse, with some companies separating the materials from the cartons, and others, such as ReWall, using the whole carton.

“These end markets are growing, and these end markets are for a specific grade of commodity,” Byrne said.

Photo credit: Brian Adams Photo/Resource Recycling Conference

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