After experiencing a three-quarters-long price roller coaster, the global recovered paper market now has to face another potential storm: a big change in Chinese recovered paper import policy.
The China General Administration of Customs announced the National Sword 2017 program in February to crack down on illegal solid waste imports. National Sword 2017 did not catch much attention at first, because the industry experienced Green Fence Operation in 2013 and most parties in the industry felt more prepared and less panic this time. Then during the 34th meeting of the Central Leading Group for Deepening Overall Reform held by President Xi Jinping on April 18, the program of “Prohibition on Import of (Selected) Solid Waste in Promotion of Reform on Solid Waste Imports Management” was reviewed and approved.
FEW DETAILS TO BE FOUND
Although some of the news that came out before or after April 18 claimed that China would ban mixed paper imports in the next couple of months or by the end of this year, the only official information about this topic is a short paragraph reported by a few government-owned news agencies. According to this paragraph, China will improve the management system of solid waste imports, make timelines and/or schedules to ban the imports of solid wastes by
category, revise and adjust the solid waste import directory, and significantly reduce solid waste imports by volume and by category through legal, economic, and administrative measures. Meanwhile, China will strive to improve domestic solid waste recycling systems and promote a resource recycling economy.
To summarize, China has been or will make schedules to ban certain types of solid waste imports and it will significantly reduce its imports of solid waste. However, there are no details for individual solid waste categories available yet.
So, will China ban mixed paper imports? Similar to the Green Fence Operation and National Sword campaign, this new prohibition on imports of selected solid wastes is trying to control the illegal solid waste imports that could harm China’s environment and ecosystems. Although the quality of recovered paper imported from different sources is reported to have improved somewhat since the 2013 Green Fence Operation, China now is demanding cleaner and better paper as it pays more and more attention to environmental protection. Among the major grades of recovered paper, mixed paper is reported to have the most prohibitives and contaminants. So, yes, it is very likely that we will see mixed paper being labeled as “prohibited” if the quality issue cannot be solved.
HOW MUCH DOES CHINA IMPORT?
China imported about 28.5 million metric tons of recovered paper in 2016, with mixed paper accounting for 20 percent of total imports (about 5.7 million metric tons). Despite the 2013 Green Fence Operation, which is believed to have impacted mixed paper trade the most, the share of mixed paper in Chinese total recovered paper imports in fact increased from 17 percent in 2012 to 18 percent in 2013 and then to 21 percent in 2014-2015.
Mixed paper has been widely used as a relatively cheap substitute for ONP and OCC to make different grades of paper and board, such as recycled cartonboard and containerboard. While sometimes opening a mixed paper bale may seem like an adventure for some paper mills because what’s inside remains unknown until it’s opened, there are still some general trends in terms of the composition of different grades of recovered paper. These trends should be consistent with the overall structure of world and regional paper and board demand and the developments of each region’s paper recycling systems.
For instance, the price difference between ONP #8 and mixed paper #2 in the US market shrank substantially from about US$40/ton in 2008 to US$23/ton in 2011, then to US$8/ton in 2015 before rebounding slightly to about US$10/ton in 2016. In addition to the change in demand and supply balance, the price developments for these two grades reflected at least partially the change in their compositions, such as the declining old newspaper content in ONP bales.
The price developments for recovered paper imported from different sources in the Chinese market also reflected the quality or composition change for recovered paper in different regions. For instance, the price differential between mixed paper imported from Japan and the USA surged from US$40/ton in 2009 to about US$50/ton in 2015-2016. The ONP grades from these two countries saw very similar price movements during the same period. It’s reasonable to believe that paper mills are willing to pay more for cleaner paper.
Of the 5.7 million metric tons of Chinese mixed paper imports in 2016, about 35 percent came from the US, 32 percent came from Western Europe, and 22 percent came from Japan. These three regions, therefore, were responsible for about 90 percent of Chinese mixed paper imports and they will be impacted the most if China’s mixed paper import ban comes out.
As for the US, it sold about half of its mixed paper collection overseas in 2016, and about 60 percent of that went to China. In general, the Western European and Japanese mixed paper markets are relatively less dependent on the exporting sector, but China is their largest mixed paper export destination, so China’s impact will be important for these two regions as well.
Imports accounted for about 35 percent of Chinese total recovered paper consumption in 2016. Given our current estimates of the Chinese real paper recovery rate and the fact that China is generally lacking in virgin fiber, the country will need to continue to import a large amount of recovered paper to support its paper manufacturing, at least in the near and medium term. The increasing environmental concerns and stricter control on imports only mean that China wants cleaner and better paper. Chinese demand for OCC and ONP could grow and the prices for these grades could rise as Chinese paper mills try to find higher grades of recovered paper to substitute for mixed paper. The mills without access to stable recovered paper supply, or mills that cannot afford more expensive recovered paper, may be forced to leave the industry eventually.
Despite the chaos that the mixed paper import ban could cause, it can be an opportunity for the paper recycling industries in the major exporting regions to think about their future business strategies. Where else can the paper rejected by China be sent? Should the specifications for different recovered paper grades be revised, and how? Should there be more sorting? Will the extra sorting cost be covered by paper mills?
Hannah Zhao, senior economist, recovered paper, is the coauthor of several industry-related special studies, including US Mixed Paper, ONP and High Grade Recovered Paper: Trends in Availability and Quality, Outlook for Global Recovered Paper Markets and The China Recovered Paper Market: A Comprehensive Analysis and Outlook. Zhao is also the author of World Recovered Paper Monitor, World Pulp & Recovered Paper 5-Year Forecast and World Pulp & Recovered Paper 15-Year Forecast. She can be reached via email: [email protected]