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Paper Recycling Conference India – MumbaiFebruary 2017

Global Recovered Paper Supply & Demand Trends

Bill Moore

Moore & AssociatesAtlanta, GA

www.MARecycle.com

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Moore & Associates –Paper Recycling Market Consultants

• Recovered Paper Market Experts

• Based in the US, Global Practice

• Market Research/Analysis

• Recycling Business Strategy

• Pricing Analysis

• Recovered Paper Purchasing/Selling Optimization Assistance

• Innovative Supply Sourcing and Development

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Global Paper and Board Production – the Macro Issue

(Million Tonnes)

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Graphic Paper Grade Production Change2014 to 2015 – Key Global Countries

• All Graphic Papers

– CEPI/Europe – down 3.8%

– US – down 6.3%– Japan – down 2.2%– China – down 0.2%

In the US from 2015 to 2016, uncoated freesheet production was down another 3.2%

• Newsprint– CEPI/Europe – down

7.6%– US – down 13.7%– Japan – down 4.8%– China – down 9.2%

In the US from 2015 to 2016, newsprint production was down another 10.3%. North American demand as a whole declined 6.7%.

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Global Trends in Printing/Writing Paper Production

• Total world production – expected in 2016: 103.5 million tonnes, down 4% from 2012

• Europe – 27.5 million tonnes in 2016, down 11% from 2012

• North American production – 17.5 million tonnes in 2016, down 13% from 2012

• China – 26.2 million tonnes in 2016, up 2% from 2012

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World Recovered Paper Demand and Usage Rate of Recovered Paper in the World Paper Industry

Million Tonnes

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Recovered Paper Demand by Major World Region

Million Tonnes

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World Recovered Paper Demand by Major RCP Grade

Million Tonnes

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Producing Paper & Board Using Recycled Fibers

•For the last several decades, recycled fiber has had a distinct cost advantage over virgin fibers for the production of newsprint, away from home tissue products, containerboard, and recycle paperboard. But not for printing/writing grades (in most markets, India is an exception) and high end packaging.

•Increasing recovered paper costs over the next ten years may change the cost advantage dynamic:

•Higher commodity cycle costs•Lower quality recovered paper, shorter fibers and non-fiber contaminants - lower yields, higher processing costs

•Moderate cost of virgin pulps, especially short fiber bleached hardwood – primarily effects tissue and printing/writing papers

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China & Other Asia RCP Demand

• Slowing Chinese RCP demand growth means further decline in its imports – Improving domestic collection: volume, quality, regulation– It was expected that this would result in about 4 million

tonnes of import drop between 2014 and 2019– Stricter control on imported RCP quality: effects of Green

Fence Operation during and after 2013– Interestingly, China imported 29.2 million tonnes of RCP in

2015, up from 27.5 million tonnes in 2014!

• Other Asia, however, will generate more trade deficit during 2017-2019– Stronger demand – Less efficient local paper recycling systems in the

developing/emerging countries in this region

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Developed Regions of the World Will Generate Almost No RCP Demand Growth

• North America: expected RCP usage growth– New recycled fiber based containerboard machines– Virgin fiber availability in this region– US is expected to consume about 35.5 million tons in 2018,

roughly the same as in 2010

• Western European RCP consumption will remain fairly flat– Increasing RCP usage in its expanding containerboard

sector, graphic paper machine conversions as in the US– Decline in RCP demand in other paper & board segments

• Japanese and Oceania RCP demand will stabilize or decrease– Decline in total paper & board production– Little increase in RCP fiber furnish

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Developing Regions Will Account for Nearly All of the Demand Growth

• China will continue to be important– China’s new normal– Slower paper & board demand and production growth – Lower recycled fiber furnish share– Over capacity issues and outdated capacity closure

campaign

• Other Asia - Outside of China and Japan– Emerging economies: India, Thailand, Indonesia, Vietnam,

Philippines, Myanmar, etc.– RCP demand growth will be faster than China, but their

paper/board production volumes are much less

• Other emerging/developing regions will also generate more RCP usage

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US Paper and Board Production

• From it’s peak in 1999 of 105 million tons, the US paper industry produced only 72 million tons of paper and board in 2016

• A decrease of over 30%!!!

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US Mill Capacity Change By Grade(tons)

Major Grade 1995 2015 Change % ChangeMarket Pulp 14,527,830 11,891,147 -2,636,683 -18%

Newsprint 6,558,860 1,891,201 -4,667,659 -71%

Packaging 53,002,204 53,720,361 718,157 1%

Printing & Writing 27,627,131 15,258,957 -12,368,174 -45%

Specialties 3,125,315 3,810,032 684,717 22%

Tissue & Towel 6,994,597 8,520,719 1,526,122 22%

Total 111,835,937 95,092,417 -16,743,520 -15%

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COPYRIGHT©PÖYRY

RECOVERED PAPER COLLECTION HISTORY AND OUTLOOK(Slide courtesy of David Powlson, Poyry, Inc.)

• Global recovered paper collection is forecast to grow from 230 million tonnes in 2014 to 295 million tonnes by 2030, corresponding to an average annual growth rate of 1.5%/a. China and the rest of Asia (excl. Japan) will account for over 75% of the world’s incremental recovered paper supply during this period

Million tonnes/a

20002015

2030

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Recovery Rates in Different Regions

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Chinese Domestic Collections and Net Imports of Recovered Paper

Million Tonnes

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Other Asian Country Collections and Net Imports of Recovered Paper

(ex Japan & China)

Million Tonnes

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Recovered Paper Net Exports from the Developed World

Million Tonnes

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Developed Regions of the World Will See Limited Growth in RCP Exports

• Asian papermakers will be scouring the globe for supplies – Western Europe, Japan and Oceania will be close to being

tapped out due to their already very high paper recovery rates

– North America may be the only region seeing some increase in exports, but strengthening domestic demand in this region will also put limits on its export growth

– Where to go next – South America?

• But more supplies will be developed in Asian developing/emerging countries – It the normal progression. We have seen it in Japan, Taiwan, Korea, and now China.– India, Thailand, Vietnam are next, but it will take a while to

develop

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North American Recovered Paper Collections(Million Tonnes)

Export share: 1990: 24%, 2000: 26%, 2010: 39%, 2016: 32%

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The Change in North American RCP Consumption Over Time

Source: Numera Analytics

2x ONP 9x ONP

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OCC Supply

• OCC recovery in the developed regions of the world is very high, really at the maximum level in many parts of Europe and headed that way in the US, but box supply growth continues

• China and India (as well as the rest of the developing regions of the world) will continue to increase their domestic OCC recovery

• All of the “easy to get” OCC is already recovered – grocery store and large generators

• Remaining OCC supply in the US to come mostly from single stream commercial recovery of small businesses and growing residential supply (from direct to home Internet purchase shipments)

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US Mixed Paper Market Issues

• Serious downside/bottom of the price cycle problems – can be over supply, the only grade that has this problem.

• However, in 2015/early 2016 while the OCC market softened, Mixed Paper held/strengthened: concern over exporting MP to China –Green Fence rejections

• Quality – fiber length, mix, and non-paper contaminants: significant capital expenditures at the mill needed to use the grade and low yield

• Not a grade that was historically desirable to produce, but RMP changed that. Grade with a limited market – Chinese modern mills and sorting changed the market dynamic – a purposefully produced grade now

• Mostly an export grade (70+%), limited large US mill users

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ONP Supply/Newsprint Market Issues

• Structural continuing decline in newsprint use in all the world’s developed economies. Even developing economies use is sluggish and future growth limited and decline is all but certain.

• Over capacity in the North American, European and Chinese newsprint industries – significant capacity reductions in Europe and US continue. Conversions to OCC based containerboard (more on that later in the Conference)

• Declining newsprint supply; increased worldwide recycle mill capacity for use of recovered newspapers - but not for newsprint, primarily in paperboard

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Recovery of US ONP/Mechanical Papers(source: Paper Recycles. Org)

(source: Paper Recycles. Org)

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Newspaper Grade Supply/Demand

• Global newspaper advertising fell 8.7% last year to $52.6 million, down from the peak years of 2006 – 2008 at about $90 billion

• Cartonboard furnish has significant newspaper grade content – paperboard grades are disconnected with newsprint supply

• ‘Board grade’ newspaper grades for recycled paperboard will continue to increase, especially for the Asian market

• Supply short nature of the recovered grade will keep bottom of the cycle prices higher than historical performance

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What Happens to Deinking Grade ONP?

• Quality is a continual problem in the US and less so in Europe – both non-paper contaminants and unbleachable fibers

• Demand is lackluster – only growth is for Asian cartonboard (boxboard), global newsprint demand continues to decline

• Board mills don’t care about unbleachables, they want it, Residential Mixed Paper is fine for them

• Does the deinking newsprint grade becomes more of a specialty grade with higher pricing ?

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World Tissue versus Printing/Writing Production

(Million Tonnes) – Note, not all tissue is based on recycled fiber

P&W Consumption Tissue Production

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10

15

20

25

30

35

40

50

55

60

65

70

75

80

85

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

P&W Consumption in Developed World World Tissue Production

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Export Destinations for US Deinking High Grades (freesheet/office grades)

Very Different Profile Compared to OCC/ONP/MP

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Generation Trends of SOP/Multigrade

• Prior to 2000, shredded office papers made up less than 10% of all office papers generated

• From 2000 through 2009, the growth in supply from shredded office papers kept market pricing for SOP/Multigrade down

• Moore & Associates estimates that shredded material now is about 50+% of the global market

• Conventional office paper source separated recycling programs are virtually gone in many markets

• Growth in supply of SOP from document destruction in the US is slowing after ten years of rapid increase. Other developed regions to follow? Emerging and developing countries probably will have more growth in document destruction.

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Recovery of US Printing-Writing Papers(source: Paper Recycles. Org)

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Other Factors Related to the Supply of High Grade Deinking Papers

• The generation of printer recovered paper grades (many of which are in tissue production) is declining due to overall downturn in printing

• World printing industry is declining

• The world recession certainly had an impact on the printing business, but it is suffering from the structural trend of printing less hard copy documents

• Single stream office recycling collection in the developed regions of the world is the growth area for collection of the “last” of office papers: but frequently can not be separated into SOP, will go into Mixed Papers, a much lower value grade

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Major Recovered Global Recovered Paper Quality Issues

• Plastic film contamination of all grades

• Glass is a serious contaminant in both ONP and Mixed Paper (and even OCC) and a costly item from a collection/processing /MRF equipment operating cost perspective

• Mixed collection leads to both higher non-paper and other fibers contamination

• OCC quality degradation from increasing recycled fiber based containerboard (short fibers) and more boxboard content

• Unbleachable fiber and other contaminants in ONP &high grades

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Quality Improvement Initiatives

• The good news is there are many groups working on improving the quality of recovered paper. Some in North America are:– Waste Management– Recycling Partnership– National Waste & Recycling Association– Recently announced program by Cascades– And numerous others

• It will take time to have an effect, but I believe we have come off the bottom or at least stabilized!

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PSI Grade Changes

• The current Paperstock Industries guidelines (specifications/definitions) are changing

• #6, 7, & 8 ONP and #1, 2, & 3 Mixed Paper are being dropped

• Replaced by:– #56 Sorted Residential Paper (SRP)– #54 Mixed Paper (MP)– #58 Sorted Clean News (SCN)

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Bottom Line - Global RCP Market Outlook

• Global recovered demand is expected to increase in 2017-2019 but the growth rate will slow– Developing regions will generate most of the growth in

RCP demand– Chinese demand growth will continue to slow– Accelerating demand growth from other Asian countries

• Supply– Recovery rates will rise slowly on a worldwide basis –

faster in emerging and developing countries, slower in the developed/mature economies

• Pricing/Costs – Overall tighter world demand/supply balance– Increased collection & processing costs

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