Compared with some of the market conditions faced by collectors and sellers of metal and plastic scrap, participants in the recovered fibre sector have fared relatively well in late 2015 and early 2016.

Supplies of recovered fibre hardly have been overabundant, with those seeking news and pams (N&P) and other print- and graphics-related grades continuing to see meagre pickings.

The better recent news is that demand for any fibre that can be procured is healthy and coming from several parts of the world. Producers of containerboard and other packaging grades are particularly hungry for more feedstock.

Gray clouds on the horizon for the recovered fibre sector come from many sources and include the likelihood of excess plant capacity in Europe, the future status of Chinese board production and that nation’s fibre demand, lingering questions about fibre quality in North America and the competitiveness of the forest products and paper industries in a low-carbon-emissions environment.

EBBS AND FLOWS

In the first four months of 2016, recovered fibre merchants and traders reported healthy demand for their materials and inbound supplies that, while not spectacular, were steady.

Three different European recyclers who provided information for Recycling Today Global Edition’s Paper Market Report (page 16) characterised demand as being steady to strong and supply as able to meet demand—but just barely.

The somewhat tight supply situation has allowed prices for many grades in Europe to move upward in the spring of 2016. These price hikes have generally been in the €5-to-€15 range, though sometimes in the €20-to-€30 range for the hard-to-find N&P grades.

At the same time, some recovered fibre prices have been rising; however, containerboard producers in Germany and other parts of Europe have been forced to lower their finished product prices to compete in a crowded market.

The conditions may well be in place for a shakeout in mill capacity, but in the meantime recyclers in Europe are enjoying strong competition for material coming from within Europe and from outside of the continent.

The Germany-based EUWID (Europäischer Wirtschaftsdienst GmbH) recycling news service reported in early April that recovered fibre prices in Italy were starting to rise as a result of a “dwindling supply” of collected fibre. In mid-April, EUWID cited increased demand as the primary factor in similar price rises in Germany.

It can be difficult to determine to what extent perception versus reality actually comes into play regarding supply shortcomings.

Figures collected by the European Commissions’ Eurostat service indicate the total volume of recovered fibre collected in the EU peaked not before the 2008 financial crisis but rather in 2011.

According to Eurostat, 39.5 million tonnes of recovered fibre were collected in the EU in 2011, but in each subsequent year that figure has drifted lower, hovering in the region of 35 million tonnes from 2013 to 2015.

During this recent time frame, recyclers have expressed concerns that slower economic activity, the decline of print media and the presence of more waste-to-energy plants all have contributed to the diminished collection volume.

Beyond the sourcing and collection steps, recovered fibre packers and merchants face other potential challenges that may well test their management skills during the rest of 2016 and into the next several years.

QUANTITY AND QUALITY

Recovered fibre traders in Europe, North America and other parts of the world all have benefitted in the 21st century from China’s leap into becoming a high-volume buyer of the grades they prepare.

Behind the success story of China’s 21st century economic growth almost always have been concerns about how or when its momentum will stop, and 2016 is proving no exception.

Economists and investment analysts have been tracking a number of economic indicators in China in 2015 and 2016 that have them expressing concern, including surging capital outflows, weak manufacturing index figures and import and export levels that were down considerably in the first two months of 2016 (before rebounding in March).

Although China may have some paper and board production overcapacity, it is unlikely it has reached a level anywhere near China’s steel industry. (See the article “Crisis Level,” beginning on page 36 of this issue.)

China’s containerboard sector is not as much in the hands of often poorly managed state-owned enterprises (SOEs) unlike its steel or newsprint sectors. To a great extent, China’s place in the global packaging sector largely rides on the ability of its leaders to manage its overall economy.

Among the most bearish about China’s near-term future is David Stockman, a former economic advisor to United States President Ronald Reagan. Stockman, on his www.davidstockmanscontracorner.com website, writes “debt in China is still growing faster than the economy.”

Stockman criticizes China’s leaders for not living up to promises to move away from central planning and toward market reform. “The obsolete state-owned enterprises are still gobbling up most credit, while leaner private companies beg for crumbs. Party bosses are not willing to give up their SOE patronage machine,” he comments.

Stockman’s gloomy prediction: “China now has a productive capacity it cannot possibly sustain and faces a world reluctant any longer to make up for the deficiencies in Chinese demand. It therefore confronts a build-up of debts it will struggle to pay and investors who expect a return they may not receive.”

As the word “contra” in Stockman’s website name attests, he is a contrarian. The forecasts for China in 2016 from entities like the World Bank are closer to adhering to the Chinese government’s own forecasts for 6.5% gross domestic product (GDP) growth.

Provided the consensus “establishment” forecasters are correct, Hong Kong-listed Chinese board producers such as Nine Dragons Paper and Lee and Man Paper Manufacturing are likely to continue to require millions of tons of recovered fibre in 2016 to keep their plants humming.

In North America, the quality of its recovered fibre was a topic of discussion at a session of the Institute of Scrap Recycling Industries (ISRI) 2016 Convention & Exposition, which took place in Las Vegas in early April.

Presenters at a session on paper bale quality said U.S. postconsumer fibre continues to face quality challenges stemming from single-stream residential collection.

Sandy Rosen of U.S.-based Great Lakes Recycling said it will take additional education and effort to improve quality standards. “By increasing awareness and talking about ways to improve quality, then we as an industry will benefit as a whole,” he commented.

U.S.-based recycler Richard Bole of Recycle Midwest in Cleveland, says the industry should not yet consider single-stream collection and processing as inevitable in the U.S. In an article submitted to Recycling Today, Bole writes, “It is tiresome to hear [solid] waste companies blame ‘the markets’ for their single-stream problems. The system was flawed to begin with because it runs against basic laws of physics and chemistry. During our 30 years in business, trying to recycle more than 35 different materials, we have learned the following truism: To get the highest and best prices (or sometimes any price), everything must be almost perfectly sorted.”

As the situation currently stands, however, ISRI’s PSI (Paper Stock Industries) Chapter will instead change the names and specifications of some of its postconsumer grades and continue to encourage dialogue between recyclers and mill companies.

THE ROAD SOON TRAVELED

Considering the numerous and differing circumstances facing the paper and the recycling industries globally, forecasting where recovered fibre pricing will head in 2016 becomes a daunting task.

In Europe, the paper and board sector has been concerned about the opening of new mills inevitably meaning that other (older) mills must close. A recycler contacted by Recycling Today Global Edition says a recent France-based report puts the overcapacity figure in Europe at 4 million tonnes.

A summary of 2015 papermaking statistics released by Brussels-based Confederation of European Paper Industries (CEPI) in February 2016 indicates Europe is taking steps to reduce capacity.

In 2015, CEPI says, “Mill and machine closures in Europe amounted to 2.4 million tonnes, whilst new capacities or upgrading of existing ones reached 1.3 million tonnes only.”

North America’s supply-and-demand balance also will continue to affect global pricing. According to the Washington-based American Forest & Paper Association (AF&PA), containerboard mills have been operating in the 95% capacity range in early 2016. While the group does not give capacity rate figures for unbleached kraft paper and boxboard, the production of both grades has continued apace in early 2016.

As in Europe, North America’s ability to supply white grades and mixed paper remains linked to sectors such as office print communication, print media and junk mail that continue to struggle against nonprint competitors.

Producers of paper and their recovered fibre suppliers will be eager for any scrap paper that is collected and makes its way into the production chain.

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