As the founder of recovered fibre export business J&H Sales, Ranjit Baxi is well placed to comment on the evolution of the paper sector. “Historically, Asia has been the main export market and the western economies have been the supplying region,” Baxi explains. He buys recovered fibre from the UK, continental Europe and the US, and sells it into markets across Asia.
Baxi explains that exporters always face volatility in supply and demand.
“The major problem that we face is changing regulations: different countries, different regions, have different interpretations of the same regulation,” he says. “But one thing I have always appreciated is that any aspect of regulatory control is primarily for the benefit of both the seller and the buyer in terms of ensuring that proper grades of material, of proper quality, are shipped from the supplier and are what the buyer wants to buy. So it’s a way to control that and we, as exporters, have got to meet those conditions.”
The global financial meltdown resulted in a tough few years for exporters, with some banks refusing to accept letters of credit. But while Baxi expects this to remain a problem for part of this year, he says the situation has eased since January. Other obstacles to business Baxi describes as “routine” for exporters include freight changes, currency fluctuations and the economic downturn of countries he buys and sells to.
But despite the challenges, Baxi sees growth in the opportunities: “I think the [paper] market is continually evolving and growing. We have had a couple of years of downturn in Europe in terms of demand, but I think this year we are seeing that some of the major western or European economies, namely the UK, Germany and France, are doing very well. New capacity is coming on stream and demand is increasing.
“For example, Germany now is really a net importer, so there are new opportunities coming up for us as exporters. Simultaneously, the economies of emerging countries such as India, China, Indonesia and Thailand are all moving and doing better all the time. For example, China recently announced growth of more than 9% and retail sales figures for China in the first quarter were, I think, in the region of 12% or 14%. So this is all very positive news for us.”
Reflecting back to when he started the business, around 1978-80, Baxi recalls that few countries had collection programmes for paper, while recovered fibre was not a major percentage of the feedstock of paper mills compared with today, where some mills can use 100% recovered fibre. He predicts further change during the next 30 years, if the global population grows by two billion, as expected.
“You will see increased demand of paper and, as a result, increased demand of fibre to make the paper - both to meet increased consumption per capita and also to service the global population growth,” he says. “For example, India’s population today is 1.2 billion and per capita consumption of paper is only 8.5kg. I think that, maybe in the next 10-15 years, we will probably see that more than double. But in the west, our consumption is something like 250-300kg per person per year.”
“I really don’t see that domestic collections in emerging markets will ever be able to meet the supply levels”
Baxi foresees that global demand for paper will exceed 525 million tonnes compared with the 420 million tonnes used today. “This means we will probably be producing at least another 100 million tonnes,” he says. “I see of this 100 million, we will probably be looking at new demand of fibre in the region of 70 million tonnes in the next 30 years. So, really, I think the story for people in the recycling industry in the next 20-30 years is quite good and quite positive in terms of demand.”
Being an exporter that takes material from several countries, Baxi sees the differences in material supplied by different markets and the effect this has further down the recovery chain.
“Quality is of paramount importance in recycling,” he says. “I feel that more and more plants will have to invest more money in better sorting technologies, and it becomes very important that we need quality standards to maintain regular demand for UK or European recovered fibre.
“Pre-1997-98, we had never heard of Japanese recovered fibre being exported to other Asian countries. But today Japan exports something like five million tonnes of recovered fibre into the Asian market, of which about 70% goes to China. Looking at the quality of Japanese recovered fibre, it is much cleaner, better and more defined [than ours], so we really have to make sure that our quality meets those specifications.”
On the subject of China, Baxi does not see that the decline in its recovered paper imports, flagged up by WRAP’s recent China market report, as being much of a concern. “WRAP is quite right in reporting a drop in Chinese imports, but I would like to believe this was only a one-year scenario, not a long-term view,” he says.
“In 2007, China imported something like 22 million tonnes, in 2008 it was 24 million, in 2009 it was 27 million but in 2010 they came down to about 22.1 million tonnes, so there has been a sharp drop. But I don’t think the reason for the drop is purely increased Chinese collection - I think it is also linked to the global downturn.
“I don’t think it should be a point to worry about because as the global population increases, so consumption will increase and China and India are going to be the markets where this will be very noticeable. I really don’t see that domestic collections will ever be able to meet the supply levels or will grow in line with the increasing demand.”
What about the recent increase in UK domestic reprocessing capacity, with the likes of Palm Paper opening and Saica due to open in 2012? Baxi welcomes the new capacity but explains that with nine million tonnes of paper collected in the UK and five million tonnes of processing capacity, there remains a big gap for export to fill.
He concedes that new mills will take some of the volume available around the country, and says there may be a short period of competition between export pricing and domestic pricing. He does not see the new capacity as being a threat to export levels but says it is “still enough to have marginal influences on prices on a quarterly or monthly basis”.
What he is concerned about is the packaging recovery note (PRN) system, which he describes as a “great idea” but one that has not quite worked.
“There have been years when the price of paper PERNs was £15 at the start of the year and £2-£3 at the end. I remember in one financial year that I had to take a loss of some £40,000 because of a drop in the value of PERNs. I, as an exporter, already have enough variables in my business - this is a new variable which I don’t want to be there but it is being imposed on me by the Government of the day,” he explains.
As a solution, Baxi proposes a PRN/PERN bank, managed by Defra or the relevant authority. Those entitled to issue PRN/PERN certificates would deposit their PRN/PERNs into the bank, with no revenue exchanged at this point and the PRN/PERNs having a fixed face value. Those who need to meet compliance regulations would buy the PRN/PERNs needed from the bank, while recycling companies would seek grants from it to use to enhance their recycling systems.
“This way, the country benefits and we all benefit,” Baxi says. But he expects it to be a topic that will generate much more debate in the industry.
RANJIT BAXI CV
Baxi founded J&H Sales (International) with his wife, Harvinder Kaur Baxi, more than 30 years ago to export recovered fibre from the US and UK. The company quickly expanded across the continent, focusing on exports to India and the Far East.
Baxi is president of the Bureau of International Recycling paper division and holds non-executive board directorships on the Olympic Park Legacy Company, Think London and Gateway to London. He has won a number of awards including the Queen’s Award for Enterprise (International Trade) 2001 and Asian of the Year 2008.