Recycling Product News Logo

Challenges and predictions for the recovered paper market in 2023

Looking eastwards for recovered paper exports

A wheel loader lifts up a bale of paper and OCC
For the U.S., export demand will hopefully pick up from Mexico, India, and Canada. Pixabay

The recovered paper business is based solely on supply and demand, and some sections of trade have witnessed semi-steady to stagnant demand through most of 2022. However, supply was weak throughout the year as well, continuing a trend witnessed by the market since the beginning of the COVID-19 pandemic.

By the first quarter of 2023, things improved, but not by much. Still, the industry remains hopeful of supply improving this year as more shoppers return to malls. A higher availability of old corrugated containers (OCC) is also expected as the year goes on, which is positive. However, if the demand is not there, then the depressed market trend of 2022 will likely continue.

Moreover, given the latest round of interest rate increases by the Federal Reserve, prices could remain weak if the U.S. economy is in a recession, people are not buying, or goods are not being sold. Some participants in the recovered paper industry believe this will change, but if we are heading into a recession, the OCC market cannot be expected to improve unless there is strong demand from overseas. For example, the exports market was very strong five years ago when China was still an influence in terms of buying directly from the United States. U.S. exporters don't have that luxury anymore. If they sell recovered paper to other countries, China may purchase from those nations, but direct trade of this material between the U.S. and China is low at present. 

A couple of companies have purchased older mills in the U.S. and retrofitted them to produce brown fibre pulp, which is produced and shipped to China directly as a replacement for OCC. However, this is an expensive proposition, especially in terms of business sustainability.

Collection and MRFs

Southern New England had a mild winter this year. The snowfall also was not as heavy as usual, so moisture – the most feared phenomenon in the recovered paper industry  – has also been lower this year. However, other parts of the country witnessed severe winter weather.

Here's the issue: The material was relatively wet in those regions, and for good export quality paper, moisture needs to be at 12 percent or less.

Collection was also low in some areas of the U.S. that went through major snowstorms in the first few months of the year. If demand had been strong during that period, slow collections would have made a major impact on prices and trade. However, since demand was soft, the weak collections did not make much of a difference.

Material recycling facilities compete against wastepaper dealers. The biggest MRFs are usually owned by solid waste companies, such as WM. However, many quasi-MRF operations are owned by public-private partnerships. A lot of paper waste comes from office buildings and homes to these facilities, and MRFs handle the processing and sorting of this material. This has resulted in many issues with quality, which ruined the United States' business with China. 

Today, MRFs are investing in robotics and machines such as optical sorters to make the sorting process more quality-driven. There is still a ways to go, and if we take our eye off good-quality recovered paper and specifications, we could witness the setback we did with China.

Looking east for exports

Exports have remained soft through the first quarter of this year. While the cues for the second quarter of 2023 are still developing, a lot will depend on the U.S. economy and demand, as well as the economies of the countries that import from the U.S. For recovered fibre especially, the next two quarters could be difficult.

For the U.S., export demand will hopefully pick up from Mexico, India, and Canada. Europe has not been a big buyer of U.S. recovered paper and is not expected to return to this market in a big way. Indonesia, Taiwan, and Vietnam remain as other potential growth markets for U.S. recovered paper. Still, these are nothing compared to the competition for material that was witnessed when China was a big buyer of U.S. paper.

Of all the current sets of importers, demand from India could grow exponentially as it becomes a bigger trading partner with the U.S. 

Countries that the U.S. exports to have changed over time. Around 45 years ago, most of the exports from the U.S. went to Spain, Italy, France, and Belgium. Then along came Taiwan and Japan, but they too stopped after their domestic industries learned to grow better and recover more within their homeland. After that, there was a long wave of imports by China, and now India is the biggest buyer of recovered paper from the U.S.

The challenges within

Looking back over the years, domestic paper producers have made the same mistake repeatedly. They overwhelm the industry and build more than they can sell. Today, those companies that are fully integrated with their own collections and converting operations are in good hands. However, some that have built paper mills without being integrated, especially on the sales side, will eventually have issues due to overcapacity.

Major paper corporations will most likely continue to mothball less efficient paper mills as they try to build more efficient and sustainable operations that are environmentally friendly. The question is, are these mills offsetting capacities? 

The answer in a nutshell would be that it all equals out. The world today is producing more containerboard, not just the United States. Its application will increase in all paper products as the population grows. Today we have less than half a dozen major players, so how much more consolidation is possible among them?

Additionally, the U.S. government always investigates antitrust laws to ensure that no one or two mills have a monopoly on this market. The paper industry's cyclical nature means that demand will strengthen after the downturn of the last couple of years, and our industry will pick up pace in tandem with the economy. The question now is, when does this upturn begin?

Jonathan Gold is the founder of the Gold Group, a consulting firm for the recycling industry. Gold helps other firms' turnaround and has advocated for the industry across various forums and platforms.

Related Articles