Looking forward, global demand for recovered paper will continue to ebb and flow and, with global manufacture and distribution now standard, a single price for material is a realistic concept.
Indeed, a global price would most certainly provide greater clarity to the sector and reduce competition between the domestic and export markets. While the UK is at capacity for the amount of paper it can process, a global price would enable companies to identify which recycling route is the most sustainable, rather than the most profitable. Consequently, should the export price reach a stage where it dwarfs the domestic price, it is possible that the UK mills end up bereft of the material they require.
Would the industry welcome such a unified approach? In truth, it will depend what that price is. But ultimately, any change will be driven by the market itself.
It would appear that we are edging towards a global price for recovered fibre, consistent with the global market. It’s not something that is going to happen overnight, but many of those in the paper sector believe that it is inevitable, driven by the globalisation of manufacture, production, sourcing and operation.
Developing countries are growing apace as the developed world takes advantage of lower manufacturing and labour costs and this shift has steadily rippled into commodity markets. Traditionally, recycling materials have been traded on two levels; domestic and export. This was driven by China’s ‘industrial revolution’ in the 1980s and 1990s and its ability to pay high prices for recovered paper.
As markets have become global, so has the recycling sector. Consequently the demand for our used fibre is increasingly coming from emerging nations such as India and China. However, there is also internal pressure to recycle and reprocess our waste in the UK as the transportation of waste to the other side of the world is seen as CO2 heavy.
Exporting recycling is seen by many as not good environmental practice. However, the UK doesn’t have the capacity to recycle all the paper we recover and the alternative to exporting would be landfill – something we are committed to reducing.
According to a market situation report produced by WRAP, recycling paper – even if it is exported to China - is significantly more environmentally beneficial than allowing it to biodegrade in landfill.
UK mills have reduced demand for recovered fibre as a result of gradual annual declines in the amount of paper being manufactured. Demand has fallen by approximately 20% since 2000. At the same time, growing participation in recycling is seeing levels of paper and board recovered from the waste stream increase - some reports indicate recovery rates well in excess of 80%.
Around 55% of the paper recovered in the UK is exported to mills in China, India and Indonesia as well as Europe. Both the Chinese economy and with it per capita paper consumption are forecast to grow relatively strongly.
The UK exported 2.8 million tonnes of recovered paper to China in 2009, which was up 12% on the previous year, approximately 11% of its recovered paper needs. But this growth won’t continue at the same pace forever. Indeed, the country is already beginning to implement its own domestic recycling processes which will provide easier access to large quantities of recovered fibre. Furthermore, the country’s investment in new mills will begin to slow.
China’s buying power has shaped the export market and in recent years the costs between the domestic and export market prices have diverged, export prices for cardboard are now around £25 per tonne higher than the domestic market, compared to around £12 in 2005. The reason for this is due to the rising need of the Chinese market to provide feedstock to its mills.
Paper prices, especially in the domestic sphere, have been volatile over the last few years due to the global economic uncertainty. The difference between domestic and export prices has remained more pronounced since the height of the crisis in 2008 when prices plummeted.
Many in the paper industry view the dip as a market correction, with current prices being a more realistic indicator of where the market should be. However, pricing volatility is believed to be an issue for the sector as short term supply is repeatedly tested, according to the RISI’s ‘Outlook for Global Recovered Paper Markets’ study.
Tim Price is national commercial manager at DS Smith Recycling