Over the Past 10 years, American recyclers have found themselves increasingly passing their materials on to overseas buyers. China and other fast-growing Asian economies have propelled the markets for recycled paper, metals and plastics to record or near-record prices and, in the case of old newsprint (ONP), provided a much-needed outlet and stable pricing for a struggling industry.
China's double-digit gross domestic product (GDP) growth is predicted to continue for the near future, but there are concerns about what will happen after the 2008 Beijing Olympics. While construction could slow in China, the country's middle class, already the size of the total U.S. population, will continue to grow. Demand for paper and plastics should hold steady, with dips possible immediately after the Olympics.
“We don't think it will be a sustained down market or too much of a trough,” says Bill Moore, president of Moore & Associates, an Atlanta-based consulting firm serving the paper industry.
The People's Bank of China (PBOC) continues to increase the required reserves for member banks and has raised the benchmark interest rate four times this year to its current 7.02 percent. Still, the pace of growth is such that PBOC's moves will not significantly impact growth, according to a report issued by Moore & Associates.
Mills have been paying record prices for recycled metals for the past four years, and prices have doubled since the start of the decade, says Bill Heenan, president of the Pittsburgh-based Steel Recycling Institute (SRI). Prices for No. 1 Heavy Melting Scrap have jumped from $110 to $120 per ton in 2000 to around $250 per ton now, with some higher grades of scrap selling in the $300 per ton range.
Again, China and India are big drivers, but the overall growth of the U.S. economy has benefited the industry as well. While Heenan doesn't expect the good times to last forever, he also doesn't predict a dive any time soon.
“All the fundamentals point toward expansion,” Heenan says. “With the exception of a major event, there's nothing in the foreseeable future that can change that.”
In an effort to enhance residential recycling efforts, SRI is working with local governments to add metal items like coat hangers, old pots and pans, and appliances to curbside recycling services. With recycling programs' fixed costs already in place, collecting more metal can only increase revenues for the municipal initiatives, Heenan says.
The industry also is making strides in overall conservation. Since 1990, the steel industry has reduced energy use by 20 percent while increasing production 7 percent, one of the few industries that can claim an increase in production while simultaneously reducing energy consumption. “We've done that by consuming more scrap,” Heenan says.
As for nonferrous metals, a recent Merrill Lynch report predicts aluminum prices will increase 12 percent to $1.18 per pound in 2008 and $1.15 per pound in 2009. Merrill Lynch increased its projected copper price for 2008, predicting $2.50 per pound for next year and $2 per pound in 2009. The report also predicts a rebound in nickel markets, predicting $12 per pound in 2008 and $11 per pound in 2009.
In the short term, financial and credit issues with the U.S. homebuilding and residential finance industries and declining consumer confidence will fail to put a damper on metals markets, says Bob Garino, director of commodities at the Institute of Scrap Recycling Industries.
“Generally speaking, we're optimistic for the fourth quarter, even given the credit crunch” Garino says. “With that uncertainty, people tend to be negative in their outlook, but with solid metal industry fundamentals, we see positive growth.”
Americans are recovering 53 percent of the 100 million-ton U.S. paper market — compared with 32 percent in 1990 — with approximately 17 million tons exported and the remaining 36 million tons going to U.S. mills, according to the Washington-based American Forest & Paper Association.
With China's burgeoning middle class and its hunger for new magazines (Rolling Stone and National Geographic recently launched there), newspapers and other paper products, international demand is expected to expand at a rapid pace. Pete Grogan, manager of market development at Weyerhaeuser, a paper producer based in Federal Way, Wash., says demand could be as high as 10 million tons per year. U.S. recovery efforts are expected to increase by 2 million tons per year, so other nations, especially Germany and Japan, will fill the gap in supplying recovered paper.
U.S. net exports of recovered mixed paper have grown from meeting 24 percent of the international demand in 1997 to meeting 56 percent of the demand in 2005. Also, 14 percent of recovered old newspapers were exported in 1996; a decade later, the figure had increased to 26 percent. Though China's imports of recovered U.S. paper have grown, U.S. imports as a percentage of Chinese recovered paper imports have shrunk from 80 percent in 2000 to 46 percent in 2005, according to a Moore & Associates report.
“It's the biggest challenge the paper and recycling industries have faced in a long time,” Grogan says. “In the past 15 years, recovered paper has become much more of a global commodity.”
Though the challenge is apparent, there's still $3 billion in unrecovered paper products in the United States, an incentive that should inspire government and industry. Still, only 55 percent of U.S. households receive curbside recycling service, and multifamily and office developments are highly underserved, Grogan says.
There's also a vast disparity in different regions' paper recycling efforts. The Pacific Northwest leads the nation, with Oregonians recycling approximately 730,000 tons of their 1 million-ton paper consumption in 2005. The Rocky Mountain states and southern United States are the laggards, Grogan says.
“I'm not sure to what degree we'll increase recovery in the U.S.,” he says. “It's getting more and more difficult to address the rest of the country.”
While U.S. and Canadian paper consumption is expected to fall 4 percent between 2000 and 2010, Eastern Europe and Russia's per capita personal consumption is expected to increase by 62 percent and China's by 70 percent.
“These emerging economies are going to be using significant amounts of paper,” Grogan says. “We're looking at a world that's seeing the most dramatic increase in both raw and recyclable materials demand ever. It'll be extremely interesting to see if the U.S. recycling industry can play a more aggressive role in supplying these volumes that are going to be in such high demand.”
As for the post-Beijing Olympics outlook, even a temporary price dip of 20 to 25 percent would leave recovered paper prices higher than five years ago, Moore says.
However, exporters face another potential problem in the form of rising transportation costs. According to Moore & Associates' fourth-quarter report, major U.S. and Asian shipping firms in the Westbound Transpacific Stabilization Agreement are requesting a $50 increase for each 40-foot container of recovered fiber. The increase would apply to both inter-modal and port-to-port transit and comes on the heels of last April's increase.
With plastic recycling, supply is the problem as demand increases, despite mixed signals from China.
China's demand for baled polyethylene terephthalate (PET) buoys the market, so economic moves by the People's Republic and its regulators will set the market. The only question seems to be “Where?”
“We're seeing so many different, confusing signals out of China,” says Mike Schedler, director of technology at the Sonoma, Calif.-based National Association for PET Container Resources (NAPCOR). “China's still a major player in the marketplace. Without them, we'd have oversupply.”
As for flake PET, NAPCOR is tracking at least 17 plants that converters have planned but not started because of chronic undersupply.
For their part, the Atlanta-based Coca-Cola Co. and Spartanburg, S.C.-based United Resource Recovery Corp. have announced plans to build a $44 million recycling plant in Spartanburg that will produce approximately 100 million pounds of recycled plastic per year, the equivalent of 2 billion 20-ounce plastic bottles or about 10 percent of Coke's annual U.S. plastic-bottle sales. Coke also will spend $16 million to establish plastics recycling centers around the United States. The world's largest recycling plant, the Spartanburg facility is expected to be fully operational by 2009 and employ 150.
Given the demand for PET and its paltry 23 percent recovery rate, NAPCOR is literally pleading for industry, households and city, county and state governments to make a concerted effort to improve plastics recycling, not only for the environmental benefits but for the overall economic benefits and profits that are left on the table — or in this case, in the landfill.
“If you look at the impact on the greater economy, it's the jobs it can create in the manufacturing sector,” Shedler says. “The environmental aspect is just gravy.”
Bailey Webb is an Atlanta-based contributing writer.