5/28/2014 Illuminating Chinas Paper Industry

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March/April 2013
Illuminating Chinas Paper Industry
Paper industry experts gathered in Beijing last winter to review the state
of Chinas recovered fiber industry at a new international conference.
By Adam Minter
In the past decade, China has played host to dozens of international conferences devoted to its
booming recycling sectors. The vast majority of those conferences have focused on the high-
profile nonferrous recycling trade, while other commodities, such as plastics and paper, have
received almost no attention. For the latter commodity in particular, the absence of attention was
puzzling, given the importance and significant growth of Chinas recovered paper industry.
According to the China Paper Association (Beijing), Chinas consumption of recycled paper
increased 249 percent from 2002 to 2011, reaching 70.75 million mt of consumption in 2011. Of
the 90.44 million mt of pulp China consumed in 2011, 62 percent was recycled material, up 332
percent from 2001. For U.S. scrap paper traders, Chinas paper recycling industry is of particular
interest and importance: For more than a decade, recovered fiber has been the top U.S. export to
China by volume. Thus, a conference examining the data, developments, and future prospects of
Chinas paper industry was long overdue.
The China International Recycled Fiber Conference, held Dec. 6-7 in Beijing, aimed to fill
that void. RISI (Bedford, Mass.), a global information provider for the forest products industry,
and UMPaper (Beijing), a paper products market intelligence service, organized the event with
support from the China National Resources Recycling Association (Beijing). The conference
attracted roughly 400 delegates, including government and trade association officials, brokers,
packers, and mill representatives. Though billed as an international conference, most attendees
came from within China. That said, the 30 or so foreign delegates included several of the global
scrap paper industrys best-known traders, analysts, and spokespeople, several of whom also
participated in
panel discussions.
Unlike most Chinese conferences, the forums sessions were interactive: All presenters took
questions from the audience, and two panel discussions generated genuine dialogue between
panelists and attendees. The liveliest sessions touched on trade policy and Chinas lack of a
standard classification system for recovered fiber. Many of the presentations were eye-openers,
providing valuable statistics and other information on the growth and current state of Chinas
secondary fiber industry and its top trading partners.
From Trees to Tablets
On the events opening morning, speakers from North America, the European Union, and Japan
Chinas three largest sources of imported secondary fibertook the stage. According to Chinese
customs data, China imported 27.28 million mt of secondary fiber in 2011, up 12 percent from
2010 and 337 percent from the 6.24 million mt the country imported in 2001, several speakers
noted. In 2011, the United States was Chinas leading international scrap paper supplier, shipping
11.78 million mt, up 16.2 percent from 2010. Europe was second, providing 5.33 million mt (with
the United Kingdom supplying 2.92 million mt of that total), up 9.2 percent from 2010, and Japan
was third, at 3.38 million mt, down 3.8 percent from 2010.
Though Chinas imports of recovered fiber continue to increase, the rate of growth has
slowed considerably. Imports grew 34 percent from 2004 to 2005 but just 4.3 percent from 2010
to 2011, reported Sarah Feng, a senior analyst for recovered fiber at UMPaper. Conference
presenters most often attributed this decline to the development of electronic readers and other
high-tech paper replacements.
Masatsune Ogura, a counselor with the Japan Paper Association (Tokyo), attributed the
decrease in Japanese scrap paper exports to China to the 2008 global financial crisis and the 2011
earthquake in Fukushima, which reduced Japanese consumption of paper products and its supply
of scrap paper for recycling. He emphasized, though, that e-readers and other digital technologies
are hurting Japans newsprint and writing paper sectors. In the medium to long term, he said,
those technologies will further shrink the amount of Japanese secondary fiber available for export
to China.
These technologies also are beginning to affect U.S. paper demand, recovered paper
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supply, and the availability of secondary fiber for export, said Bill Moore, president of Moore &
Associates (Atlanta), an international recovered fiber consultancy. North American paper and
paperboard consumption declined from 100.3 million mt in 2004 to 77.5 million mt in 2012, he
reported. Those consumption numbers dont include imported boxescorrugated containers
imported from other countries (usually China) as packaging for finished goods, he noted, but even
adding in the boxes from Asia, youd be down.
The U.S. declines are particularly staggering in newsprint and writing and printing papers
the grades most affected by such technologies as the iPad and Kindle, Moore said. The U.S.
supply of recoverable ONP declined from 17.54 million mt in 2004 to 9.19 million mt in 2011, he
said. Significantly, the U.S. paper recovery rate in that period increased from 62 percent to 72
percent, but the tonnage recovered declined from 11.13 million mt to 6.62 million mt. Given that
dwindling supply, the fairly steady consumption of U.S. mills has only made matters more difficult
and markets tighter, he said.
The shift to e-readers and corresponding shrinkage of the North American scrap paper
base are pressing China to seek new sources of recovered fiber. Melissa Chen, a packaging paper
associate analyst with UMPaper, said Chinas volume of domestic fiber recovery surpassed its
imported tonnage in 2008 and hasnt slipped below imports since then. Several factors drove that
shift, including growing Chinese domestic scrap paper collections and tighter supplies in markets
that traditionally export to China.
On the same topic, Moore said North American mixed paper also is on the decline as an
export item after years of being one of the leading grades into China, in part due to the reduction
in bulk mail. Meanwhile, higher U.S. recovery rates are driving down qualitythe last ton is the
hardest to get, and always dirty, he saidand Chinese interest in the grade. Nonetheless, record
Chinese demand for fiber of almost any type continues to support high prices for mixed paper.
Before Chinese demand commoditized mixed paper in the 1990s, Moore explained, the price of the
material usually hovered around 20 percent of that of high-quality OCC. Nobody wanted to take
mixed paper, he said. Then China started using it, and the price went up. From 2007 until the
global economic crisis hit in mid-2008, mixed paper prices were about 70 percent of OCC prices,
almost entirely due to Chinese demand. Even during the depths of the commodity crash in early
2009, the mixed paper price remained at 45 percent of the OCC price. It approached 80 percent in
late 2011 but has since fallen.
Moore declined to provide data on U.S. mixed paper volumes due to questions about the
numbers. Mixed paper usage and export stats are wrong, he asserted. Whether its mislabeling
for inspection purposes, I dont know. The statistics are wrong. He did note, however, that 54
percent of U.S. mixed paper grades in 2011 were exported, and 59 percent of those exports went
to China.
Ranjit Baxi, founder and chairman of J&H Sales International (London) and president of the
Paper Division of the Bureau of International Recycling (Brussels), offered a view from the EU
Chinas second-largest supplier of recovered paper. Though Europe also faces declining paper
consumption, Baxi sees opportunities for higher recovery in certain areas. According to his data,
the European paper recycling rate was 70.4 percent in 2011, but 12 countries fell below a 60-
percent rate, he said, suggesting the potential to increase recovery in those nations.
Demand from the developing world will consume any additional tonnage Europe collects,
Baxi said, noting that paper consumption rates per person in developing countries fall far below
those in the industrialized world. For example, he gave a U.S. per capita paper consumption rate
of 654 pounds compared with 98 pounds in China. Chinese consumers might never reach the U.S.
per capita level, but theres no doubt they will demand more and more fiber, Baxi said. He believes
the fiber will have to come from developing economies in South America and Southeast Asia that
are starting to seek markets for their excess fiber.
Homegrown Recycling Success
Ultimately, Baxi and other speakers agreed that China needs to generate more supply on its own.
Niu Qingmin, vice president of the China Paper Association and president of the Jiangsu
Papermaking Association (Nanjing, China), told delegates, From the beginning of this century, the
domestic recovered paper recycling ratio has increased substantially, complemented by imported
recovered paper. As a result, the use of recycled paper has fundamentally changed the raw
material structure of the Chinese paper industry. The statistics are stunning: From 2001 to 2011,
Chinas recovered fiber volume increased from 10.13 million mt to 43.48 million mt and its paper
recovery rate grew from 27.5 percent to 44.6 percent. He attributed the higher recovery rate to
increased demand, higher prices, and better infrastructure. That rate still is far below the
recovery rates in more developed economies, which average around 57 percent, said Hannah
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Zhao, an economist on recovered paper for RISI. If the calculation includes the fiber exported to
other countries as packaging containers and later returned to China for recycling, however, its
recovery rate is closer to 58 percent. Moore also noted that the return of exported fiber drives up
Chinas recovery rate, though he didnt provide a percentage.
Chinas growth in paper collection and improvements in pulp-making technology have
turned domestically sourced pulp from recycled materials into the leading raw material in its paper
production, at 38 percent of all pulp used in 2011, Niu said. Another 24 percent was imported pulp
from recycled sources; 15 percent was imported wood pulp, and 9 percent was domestic wood
pulp. Nonwood pulpincluding pulp from straw, traditionally an important raw material in Chinese
paperwas another 14 percent of the countrys papermaking raw material, but that category is
shrinking and will continue to do so as Chinese paper and paperboard makers upgrade their
capacity, technology, and quality. On the first count, Chen said that Chinese mills will commission
8.1 million mt of new recovered paperboard capacity in 2012 and 2013, requiring an additional 9.3
million mt of recovered paper annually.
Technological upgrades are an essential part of these capacity increases because they
have given Chinese paper producers the ability to process low-quality imported mixed paper and
much lower quality domestic fiber. This dramatic, necessary shift to low-quality domestic paper
has had a profound effect on the Chinese domestic paper market, with domestic recovered paper
prices now in line with imported prices, Feng said. Chinas paper market still is not a national one,
but rather a set of regional and even mill-specific markets. She reported, for instance, that since
mid-2010, OCC prices have been consistently higher in south China than in north China, often by
as much as 10 percent, in part due to the large capacity increases in south Chinas mills.
According to Wang Xubin of the Department of Circular Industry Development at the
Chinese Ministry of Commerce (Beijing), China has 3,500 paper and paperboard producers. He did
not give the proportion of producers that use recovered fiber, but Niu said two-thirds of Chinas
top 30 papermaking enterprises do so. The emphasis on scale is important: Niu, Wang, and other
government speakers indicated that Chinese government policy favors large paper makers over
small and midsized ones. The theory is that large enterprises are better capitalized to implement
improvements in technology and environmental protectionand they are much more likely to pay
their taxes.
UMPapers Chen pointed out that government efforts to reduce the number of paper
producers have had a significant effect in Fuyang in Zhejiang province, a major boxboard
manufacturing zone. The number of boxboard manufacturers has declined from more than 400 a
few years ago to 200 today. Even with fewer producers, however, Chinas boxboard production
rose from 4.6 million mt in 2002 to 13.4 million mt in 2011, Chen said. Other paper products
subject to the same regulatory pressures show similar growth. Chen reported that testliner
production grew from 6 million mt in 2002 to 19.9 million mt in 2011, while corrugating medium
increased from 6 million mt to 19.8 million mt in the same period. Boxboard and containerboard
production were 44 percent of Chinas paper and paperboard production in 2002 and 54 percent in
2011, Chen said.
Perhaps the most interesting and important development in the evolution of Chinas
containerboard industry is the measurable improvement in product quality. In the past decade, the
basis weight of Chinese testliner and corrugating medium has fallen, forcing an improvement in
fiber quality and manufacturing technology, Chen said. Contributing to these improvements are a
reduction in straw-pulp-based paper in Chinas recovered supply and the general improvement of
Chinas domestic recovered paper supply. Chen and other speakers agreed, however, that quality
problems will persist until China has a consistent classification system for scrap paper.
The Specification Question
The topic of grade classification and standardization stirred the hottest debate at the RISI
conference. Currently, China relies on a variety of specifications, including those from ISRI, the
EU, and the Japanese paper industry, as well as a hodgepodge of mill standards. Feng surveyed
coastal mills in some of Chinas paper recycling hubs to determine how greatly the specifications
differ from mill to mill, coming up with a few common standards for OCC from her results. What
she labeled Grade A consists of boxes and offcuts from converting plants, as well as some
imported boxes made from kraftliner and collected in industrial areas with a moisture level of 12
percent or less, no more than 3 percent non-OCC paper, and no other impurities. In contrast,
Grade D OCC is mainly collected from households in residential areas. It, too, contains 12
percent or less moisture, though it can have 50 to 70 percent non-OCC paper and 10 to 12
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percent impurities. These specifications represent only a rough consensus of what her survey
discovered, Feng noted, and they might not suit the specific needs of individual mills. She
reported finding the highest standards in the Pearl and Yangtze river deltas and lower standards in
the north and inland.
I think the major challenge now is that there is no standard, said Ross Li, deputy general
manager of Lee & Man Paper Manufacturing (Hong Kong), one of Chinas largest paper
manufacturers, summarizing mills frustrations. We [each] have standards; the issue is that
theres no alignment of standards. If we want to unify the standards, we have to ask the
government or an association to do it. Zhang Zengguo, executive director of China Sunshine
Paper Holdings Co. (Shandong, China), one of Chinas biggest paperboard manufacturers, urged
the industry to develop its own standards before the government does it. We need a rudimentary
standard, he said. If theres no standard, its not a product. If you run a business and you have
no standard for the product, you wont have a mature product. We dont need a national
standardization committee of the government to do it; we can do it ourselves. (Reportedly, some
conference participants made efforts while there to organize an association, with the initial
primary task of creating mill specifications.)
The industrys aversion to government involvement in its specification process doesnt
mean a total aversion to government assistance. The audience warmly received Wang Xubin of
the Ministry of Commerce (Beijing), along with his comments that the government would
encourage and support a trend toward replacing hand-packing of paper with automatic baling.
That support presumably would come in the form of government subsidies.
Wang also noted that the State Council, Chinas highest administrative arm, has ordered
his agency to coordinate with other ministries, including finance, housing and urban-rural
development, and the National Development and Reform Commission (Beijing), to fund the
development of a national collection and recycling system. Such a system would encompass more
than recovered fiber, improving the quality of all collected secondary materials, he said. Currently
the ministry is overseeing pilot recycling programs in 35 cities, and it plans to expand those
programs to 80 cities, thereby increasing the market for recovered paper. Support for large
companies will continue, with the government planning to create collection and sorting centers
that take advantage of existing large collection networks.
After two days of workshops and panel discussions, it was clear that the issues raised at
the inaugural China International Recycled Fiber Conference wont be resolved by the time the all-
but-inevitable second conference convenes in 2013. Discussing those issues in an open forum in
Beijing, however, is a giant step for Chinas paper recycling sector and the international industry
that has evolved with it.
Adam Minter is a journalist based in Shanghai, where he writes about business and culture for a
range of publications. Bloomsbury Press is publishing his book about the scrap industry in fall
2013.