Realising the value of recovered paper: An update

Market Situation Report – Winter 2009/10

In July 2007, we published the first paper Market Situation Report. This update looks at the key factors influencing the UK markets for recovered paper and board (recovered fibre) since then, including: developments in the domestic and overseas paper manufacturing sectors; changes in collection trends; and movements in prices. In addition, the report focuses in detail on trends in UK paper production and consumption and its implications for future demand for recovered fibre.

Key themes to emerge from the paper recycling sector in 2009 are:

declining paper consumption has led to lower volumes of paper recovery, despite rising recovery rates;

production capacity has continued to contract in certain parts of the UK paper manufacturing industry but has expanded in others. As a consequence, the nature of the demand for recovered fibre is changing; and

prices have been very volatile over the past 18 months, reaching unusually high levels in mid 2008, before declining steeply and then recovering towards historic averages.

2 Market Situation Report – Winter 2009/10

Welcome to the recovered paper Market Situation Report update, part of our series of reports that examine current economic conditions in the markets for recovered materials.

ContentsUK consumption and production 3 of paper and board

Paper recovery in the UK 3 Municipal collections 3 C&I collections 4

Recycling the UK’s recovered paper 4

Prices 5

Sustainability and challenges 6 going forward

Special topic: Long-term challenges 6 and opportunities for the recovered paper sectorTrends in demand and supply 6 by sectorNewsprint 6Printings and writings 6Tissue 7Packaging materials 7Conclusions 7

Market Situation Report – Winter 2009/10 3

UK consumption and production of paper and boardAn estimated 13.2 million tonnes of paper and board products were consumed in the UK in 2008 (Table 1), 7% less than in 2007. Consumption of unconverted paper and board was about 11.5 million tonnes in 2008,1 with the remainder imported either in the form of converted products or as packaging for other manufactured goods. Data for the first nine months of 2009 suggest an even sharper fall (around 10%) in paper and board consumption in 2009. Consumption has fallen across all grades, but most steeply for printings and writings (P&W) paper. Our special topic explores the drivers of these declines in more detail. What is unclear at this stage, however, is how much of the decline is cyclical (that is, related to the economic downturn) and how much is structural (i.e. permanent).

Around 5 million tonnes of paper and board was manufactured in the UK in 2008, 3% less than in 2007, continuing the steady decline seen over recent years (Graph 1). The pace of decline increased in late 2008 and 2009 as a number of mills closed. Data for the first nine months of 2009 suggest that paper production will be about 15% lower in 2009 than in 2008.

Paper recovery in the UK8.8 million tonnes of paper and board were recovered from the UK’s waste stream in 2008, up from 8 million tonnes in 2006 (Graph 2), representing a further increase in the collection rate to around 67%. Although the collection rate may increase slightly further in 2009, collection volumes look set to fall as the decline in paper and board consumption feeds through into lower volumes of material in the waste stream. Almost 40% of the recovered fibre is collected from the municipal waste stream, with the remainder coming from the commercial and industrial (C&I) waste stream.

Municipal collections

3.2 million tonnes of paper were collected from the municipal waste stream for recycling in 2007/08. Over 80% of this was collected via kerbside collection schemes (Table 2). The proportion of paper and card that was collected co-mingled with other materials rose: to over 40% in 2007/08 compared with 30% in 2005/06.

All but one of the 434 local authorities in the UK offered kerbside paper collections in 2008/09 (Table 3). Of these, 171 (39%) collected paper co-mingled with other materials. By contrast, 372 local authorities (86%) collected cardboard at the kerbside, of which 61 collected it mixed with green waste for composting.

In mid-2009 WRAP updated its guidance to local authorities on the choice between kerbside sort and co-mingled collection.2 The available evidence indicates that kerbside sort schemes offer reliable material quality while also being able to capture the same volume of material as co-mingled schemes. However, single stream co-mingled collection of recyclates may be appropriate in circumstances where other options are impractical.

The volume of paper and board collected at bring and civic amenity (CA) sites has continued to rise, despite the increased prevalence of kerbside collections. Partial data suggest that this reflects an increase in board collections, offset by declining paper collections.

Table 1: UK consumption of paper and board million tonnes

Paper grade 2007 2008 20091

Newsprint 2.5 2.4 2.1

Printings & writings 4.5 4.2 3.7

Tissue 1.1 1.1 1.1

Packaging 3.4 3.2 3.0

Other paper and board 0.6 0.6 0.5

Apparent consumption of unconverted paper and board2 12.1 11.5 10.4

Net imports of converted products3 0.8 0.6 ..

Net imports of packaging around other goods (estimated) 1.2 1.1 ..

Estimated total consumption 14.1 13.2 .. 1 Annualised from data to September 2009.2 UK home sales plus imports of unconverted paper and board. 3 For example, boxes, cartons, books, brochures,

catalogues and nappies.

Sources: CPI, HM Revenue and Customs and WRAP estimates

11 milliontonnes

11 million tonnes of CO2 equivalent emissions were avoided by recycling paper

and board in 2008, the equivalent of taking

around 3½ million cars off the road.

Graph 1: UK paper productionmillion tonnes

6.0

4.0

2,0

0.0

Other

Tissue

Packaging

P&W

Newsprint

Year 2005 2006 2007 2008 2009*

* Annualised from data to September 2009

Source: CPI

1 This report draws extensively on data compiled by the Confederation of Paper Industries (CPI), www.paper.org.uk 2See ‘Choosing the right recycling collection system’, WRAP 2009

One possible explanation for this is that increased access to kerbside collections has raised awareness and willingness to recycle, prompting more households to take items not collected at kerbside (e.g. large boxes or phone books) to bring/CA sites.

As almost all households already have kerbside paper collections, there is little scope to increase collection rates by widening access to paper collection schemes. Although it might be possible to introduce further kerbside collections of cardboard and/or further increase participation, the volumes of paper collected from households are unlikely to continue to grow at the pace seen previously because of both the high recycling rate already achieved and the decline in paper consumption.

C&I collections

No specific information is available about C&I collections of recovered fibre, but inferences can be drawn by looking at the difference between total and municipal recovered fibre collections.

Although the tonnage of recovered fibre collected from the C&I waste stream has increased over recent years, C&I material now forms a smaller proportion of the overall total owing to the rapid growth in household collections. Increasing collection volumes in the face of stable to declining paper consumption suggests an increase in the propensity of businesses to recover paper. The increased recovery may, in part, be due to the introduction of the pre-treatment regulations in 2007, under which no waste can be sent to landfill unless it can be demonstrated to have undergone a treatment process. ‘Treatment’ can include removing a proportion of the waste for recycling either through a separate collection or via a sorting facility. It may also reflect the increases in landfill tax and the emerging corporate sustainability agenda over this period.

Recycling the UK’s recovered paperNewsprint and board mills are the main users of recovered paper and, in the UK, these products are produced entirely or almost entirely from recovered fibre. By contrast, the quality specifications of P&W papers are a barrier to including or increasing recycled content, while the 50%-60% recycled content in tissue products is constrained by a perceived consumer preference for the products made from virgin fibres.

Although utilisation rates at UK mills have remained high, demand for recovered paper from UK mills has fallen as a result of lower production and now stands about 20% below its 2000 peak. Domestic mills used 7% less recovered fibre in the first 9 months of 2009 than in the same period of 2008. However, this is a smaller fall than that in paper production overall, which reflects the fact that much of the decline in production was of paper that had little recycled content.

The overall numbers mask starkly different trends between paper grades. Domestic consumption of old corrugated casing (OCC) and high grades have fallen in 2009, largely reflecting the closure of packaging and P&W capacity that used these grades. By contrast, consumption of news and PAMs (periodicals and magazines) and mixed grades – which are used by newsprint mills – has held up; supported by demand from the Palm newsprint mill in Norfolk which became operational in August.

The long-term decline in domestic demand for recovered fibre means that export markets have absorbed the increase in supply in recent years. Around 55% of the paper that is collected for recycling is exported, with the main end-markets being paper mills in China, India and Indonesia (Graph 3). OCC is particularly dependent on China, which accounts for over 80% of OCC exports, compared with 30–40% for the other grades.

The overall proportion of recovered fibre that is exported has remained broadly stable during 2009. However, there are variations between paper grades. News and PAMs exports have fallen in 2009 as UK demand has strengthened while supply has fallen sharply, whereas OCC exports have been higher on average during 2009 than in 2008 (Graph 4), fully offsetting the fall in domestic demand.

Exports of recovered fibre continued throughout the market volatility seen at the end of 2008, despite a temporary dip in November. The dip was caused by a sharp fall in exports to China, although this was partially offset by increased exports to India and Indonesia.

4 Market Situation Report – Winter 2009/10

Table 2: Paper & board recovered from the UK municipal waste stream: 2007/08thousand tonnes

Kerbside Bring/ Other Total CA sites

England 2,214 446 50 2,710

Wales 103 33 11 147

Scotland 203 46 13 261

Northern Ireland 75 11 2 88

Total 2,596 535 76 3,207

Note: ‘Other’ includes municipal collections of commercial, industrial and other non-household waste. Data include an assumed paper & board fraction from co-mingled collections calculated using information about individual local authority collection schemes. Date for 2008/09 will be available in early 2010.

Sources: WasteDataFlow and WRAP estimates

Table 3: Local authority paper & board collections in the UK: 2008/09number of LAs

England Wales Scotland Northern UK Ireland

Paper Co-mingled 135 6 10 20 171

Separate 218 16 22 6 262

Card Dry 245 17 23 26 311

Organic 57 1 3 0 61

Memo Total no. of LAs 354 22 32 26 434

Note: ‘Co-mingled’ includes two-stream collection schemes that include paper within the co-mingled fraction. ‘Separate’ includes both paper only and mixed paper and cardboard collections (both two-stream and kerbside sort). The card collections double count a small number of local authorities that offer dry and organic collections of cardboard to different households.

Source: WRAP

%

80

60

40

20

0

Year 2003 2004 2005 2006 2007 2008 2009

* 2009 estimate annualised from data to September

Source: CPI

Graph 2: Collection of paper from the UK waste streammillion tonnes

8.0

6.0

4.0

2,0

0.0

Tonnes Recovered (LHS)

Collection Rate (RHS)

Typical prices of

recovered fibre

(Dec 2009):

News and PAMs: £64-£69 per tonne

Old corrugated casing (OCC): £55-£58 per tonne

Mixed papers: £52-£55 per tonne

Did you know?67% of the paper and board consumed in the UK is recovered for recycling.

As paper prices recovered in mid 2009, exports to India and Indonesia declined suggesting that demand in these countries might be more price sensitive than Chinese demand or that China is the end-market of first choice for exporters.

Looking forward, Chinese demand for recovered paper is likely to continue to grow as both the Chinese economy and per capita paper consumption are forecast to grow relatively strongly. However, the UK’s dependence on China for exports of certain paper grades is a potential source of vulnerability. Market contacts have indicated that China is enforcing its quality standards more stringently and other major importing economies are also introducing tighter inspection regimes. So it is important that the UK’s recovered fibre can meet these more demanding quality requirements.

Prices2008 and 2009 saw extreme volatility in recovered paper prices (Graph 5). Prices of all grades fell sharply in late 2008 as uncertainty surrounding the severity of the economic slowdown dented market confidence and caused a degree of market disruption. Prices of OCC and mixed paper grades – for which a larger proportion of recovered fibre is exported – were more severely affected than prices for news and PAMs, which were supported by stable demand from the domestic market.

Prices began to recover in early 2009. Prices had returned to their five-year averages by mid 2009 and to similar levels as those prevailing at the beginning of 2008 by the end of the year, but they remain significantly below their mid-2008 peaks. News and PAMs prices have been boosted by strong domestic demand (in particular, from the new Palm mill), while OCC prices are reported to have been boosted by strong Chinese demand which may in part reflect the greater competitiveness of UK OCC owing to a weaker pound.

Mixed papers normally trade at lower prices than news and PAMs or OCC, because of their lower quality and the costs of separating the material out into separate grades. In late 2008, the gap between news and PAMs and mixed paper prices widened to the extent that it became economic for domestic newsprint mills to buy mixed papers and separate the grades, using the news and PAMs in newsprint manufacture and selling the remainder (Graph 6). This was reflected in an increase in mixed paper use by domestic mills in 2009. However, it is unclear whether the practice will continue as the price differential had almost returned to its historical average by the end of year.

Sustainability and challenges going forwardRecycling paper is significantly more environmentally beneficial than allowing it to biodegrade in landfill.3 The available data suggest that this remains the case even if the recovered paper has to be transported to China to be recycled.4 Further WRAP research into the environmental benefits of recycling will be published in early 2010, but current data suggest that the 8.8 million tonnes of paper recovered in 2008 avoided 11 million tonnes of carbon dioxide equivalent emissions.

Recovered paper provides a cost advantage compared with virgin fibre. However, the use of recovered paper is not entirely about the relative costs and energy requirements: security, consistency and quality of supply of fibre are important factors. Recovered paper supplied to the market is not a homogenous commodity and, while there are a number of quality definitions for recovered paper, a coherent standard does not exist. Accordingly, strong supply chain relationships are key. The solution for some UK paper mills has been to vertically integrate paper recovery and collection systems, rather than sourcing material from the market, in order to provide better quality control.

It is estimated that up to 1.5 million tonnes more paper could potentially be recovered from the waste stream. However, although some high quality paper (e.g. P&W paper from schools) remains uncollected, some of this residual paper (e.g. post-consumer packaging) is likely to be of lower quality. A key challenge for the recovered paper sector is to improve quality in order to continue to meet the needs of both domestic and overseas markets.

Market Situation Report – Winter 2009/10 5

3 See ‘Environmental benefits of recycling’, WRAP 2006

3 See ‘CO2 impacts of transporting the UK’s recovered paper and plastic bottles to China’ , WRAP 2008

Source: HM Revenue and Customs

Year 2006 2007 2008 2009 2010

Graph 4: Monthly recovered fibre exports thousand tonnes

News and PAMs

High grades

OCC

Mixed

200

150

100

50

0

Graph 3: UK recovered fibre exports per cent

Source: HM Revenue and Customs based on period from Jan 2008 - Oct 2009

China/Hong Kong

India

Indonesia

Other Asia

EU

Other

60

8

8

4

173

Special topic: Long-term challenges and opportunities for the recovered paper sectorThe past year has seen marked changes in the UK’s patterns of consumption and production of paper. Some of these changes have been (probably temporary) responses to the challenging economic conditions posed by the recession, but some of them reflect long-term (structural) changes in paper usage. This section explores some of the long-term trends in the paper sector and their potential implications for the supply of and demand for recovered paper in the UK.

Trends in demand and supply by sectorOver the past decade, information technology has transformed the way in which people communicate and do business. Until recently, however, this revolution seemed to have only a muted impact on paper consumption: paper consumption was declining but only gradually, with many electronic formats complementing rather than substituting for paper-based communications.

The recession appears to have accelerated the transition away from paper. For example, cuts in advertising budgets have led to falls in newspaper pagination and declines in print media such as direct mail. Although print advertising may rebound as the economy recovers, the lower costs and greater ease of measuring the effectiveness of digital advertising may mean that print advertising stabilises at a permanently lower level.

Nor is the packaging sector immune to structural changes in demand. On the one hand, the increase in internet-based retailing has led to an increase in home deliveries and rising secondary packaging in the household waste stream. On the other hand, waste minimisation and packaging optimisation – which will be a focus of WRAP’s new Cardrite programme – may lead to decreasing packaging consumption.

Newsprint

Newsprint consumption fell by 12.5% in the first nine months of 2009 compared with the same period a year earlier. Paid-for newspaper circulation has been declining for some time, as competition from other media formats has eroded demand. In 2009, this decline accelerated. National newspapers experienced an average decline in circulation of 4%, while the circulation of regional newspapers fell at more than twice that pace.5 Coupled with this, lower advertising spend led to a fall in newspaper pagination, which also affected the free-sheet sector.

UK newsprint production has remained broadly stable at around 1.1 million tonnes per annum over the past few years. Despite the decline in newsprint consumption, UK production increased in 2009 as the new Palm mill in Norfolk became operational in August, while production at the UK’s other newsprint mills was broadly stable. Accordingly, the decline in consumption has led to fewer imports. Net imports of newsprint fell by around 20% in the first nine months of 2009 compared with the same period a year earlier.

As previously noted, all of the UK’s newsprint mills use 100% recovered paper. The increase in production – and desire to secure supply ahead of the opening of the Palm mill – increased demand for news and PAMs and mixed paper grades in 2009. At the same time, declining consumption of newspapers and magazines led to a fall in news and PAMs collected for recycling. The result of this was that the proportion of news and PAMs going to domestic mills rather than being exported for recycling increased sharply.

The outlook for domestic demand for recovered news and PAMs remains strong. Although the future of AbitibiBowater’s Bridgewater mill is unclear following its recent filing for administration, the remainder of the UK’s existing domestic newsprint capacity appears to be globally competitive (at current exchange rates). Further investments in domestic capacity are rumoured which, if realised, could make the UK self-sufficient in newsprint by 2015.

Printings and writings

Around a third of the paper consumed in the UK is printings and writings (P&W) paper, which comprises mechanical grades (coated or uncoated, which are largely used for magazines and catalogues), uncoated woodfree (office papers and offset grades) and coated woodfree (high end magazines, corporate reports and brochures).

6 Market Situation Report – Winter 2009/10

5 Source: ABC.

Consumption of P&W paper declined by around 13% in the first nine months of 2009 compared with the same period a year earlier. Consumption of coated wood-free grades fell particularly sharply, reflecting the decline in advertising, while market participants have cited the move to electronic invoicing as a factor behind a possibly permanent fall in demand for uncoated woodfree paper. The fall in mechanical grades was less marked, in part because – unlike newspapers – aggregate magazine circulation seems to have been broadly stable.

Only a small fraction of P&W paper is produced domestically, and the UK has effectively no capacity to produce P&W paper with a high recycled content. Mill closures in 2008 halved the UK’s P&W production and there is limited potential for new capacity (owing to global overcapacity in the sector) or to increase the recovered fibre usage of existing mills owing to the specialist nature of their products.

However, recovered P&W papers can be used in the manufacture of other paper grades, where there may be potential for growth in domestic demand for recovered fibre. Old magazines (which comprise part of news and PAMs) are used by newsprint mills, while high grade papers (office waste) are used in tissue manufacture (see below).

Tissue

Around 1.1 million tonnes of tissue paper were consumed in the UK in 2008, around two-thirds of which was toilet tissue. Tissue consumption is less cyclical than that of other paper grades: accordingly, consumption fell by only around 4% in the first nine months of 2009. Looking forward, the sector is likely to grow slowly. About 70% of the tissue consumed in the UK is produced in domestic mills.

Tissue products are not generally recycled owing to the nature of their use. However, UK tissue mills use around 0.5 million tonnes per annum of high grade recovered paper. In principal, this level could be higher, providing a domestic market for the 0.2 million tonnes of high grade recovered paper currently exported for recycling. A key challenge is consumer acceptability. Although rising consumer interest in environmental issues might support an increase in recycled content in tissue products, consumers appear to prefer the brightness and softness provided by virgin fibres.

Packaging materials

Around 3 million tonnes of packaging materials – including corrugating casing and cartonboard – are consumed in the UK per annum. Indirect imports of packaging around other products are estimated to add a further 1 million tonnes per annum to the UK waste stream.

Consumption of packaging materials is estimated to have declined by around 7% in the first nine months of 2009, compared with the same period a year earlier (note that no timely data are available on indirect imports). Some of this fall is likely to be cyclical and market participants indicated that demand had increased towards the end of 2009. However, long-run data suggest that there is a downward trend in packaging board and paper consumption, which is possibly driven by light-weighting considerations.

Domestic mills manufacture about half of the packaging materials consumed in the UK (excluding indirect imports). Although a number of mills have closed over the past year, in part reflecting a response to global overcapacity and import competition, UK mills appear to have maintained market share.

The packaging materials manufactured in the UK – most of which is corrugated casing – have close to 100% recycled content, so there is little potential to increase existing mills’ utilisation of recovered paper. Moreover, the amount of OCC recovered for recycling is around double the UK’s production of packaging paper and board. So unless there is investment in new domestic capacity that can displace imported packaging materials, export markets (in particular, China) for OCC will remain vital.

ConclusionsThere is likely to be some rebound in paper consumption as the UK emerges from recession, but the long-term trend in consumption is likely to be downward. With recovery rates likely to increase only slowly from now on, paper collection volumes may decline.

For some paper sectors – such as newsprint – declining consumption and increased production will mean that the UK will be more self-sufficient, meaning that there will be domestic end markets for more of the paper recovered from the UK waste stream. For others, the pattern is less obvious. Although there may be limited scope to increase domestic utilisation of paper, overcapacity – particularly in Europe and in the US – presents a continuing threat to the UK paper sector and hence domestic markets for recovered paper.

The market volatility seen at the end of 2008 highlighted the importance of building and supporting a diversified set of end markets – both domestic and overseas – for the UK’s recovered paper.

Market Situation Report – Winter 2009/10 7

Graph 5: Recovered paper prices£ per tonne

Source: WRAP Materials Pricing Report, midpoints of range

100

75

50

25

0

News and PAMs

Mixed Paper & Board

OCC

Graph 6: Difference between news and PAMs and mixed paper prices £ per tonne

Source: WRAP Materials Pricing Report, midpoints of range

45

30

15

0

Year 2007 2008 2009 2010

Year 2007 2008 2009 2010

Market Situation Report – Winter 2009/10 8

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