RECOVERED PAPER FORECAST THE ROLE OF RESIDENTIAL COLLECTION

William E. Franklin Chairman and Principal

FRANKLIN ASSOCIATES, LTD.

Presented at

WASTEPAPER VI CONFERENCE Chicago, Illinois May 9-12,1995

Session I, May 9,1995

RECOVERED PAPER FORECAST

THE ROLE OF RESIDENTIAL COLLECTION

INTRODUCTION

The theme of this year’s conference is very appropriate--”Secondary Fiber

is in Short Supply. Where Will Future Supply Come From?’’ For the time

period 1988 to about April 1994, the value (prices) of paper was falling (1988) or

was in a long period of low prices, 1989-1993 (5+ years), even as the demand for

recovered paper increased steadily.

Meanwhile, the supply system infrastructure was being built up in

response to pressures largely driven by recycling fervor and solid waste

diversion goals in communities across the USA. It was quite amazing that

supply and demand were in balance during the 1989 - early 1994 period, with

increased demand for recovered paper almost matching the increased output of

the paper industry during this period. Perhaps the fact that exports were

essentially flat during this period explains part of the reason supply kept up with

growing mill demand in the USA.

When the demand for recovered paper and for finished products took a

sudden and dramatic jump in 1994, the supply infrastructure simply was not

ready and the recovery rates, while increasing strongly in 1994, were inadequate

to the demand.

1

* For example, corrugated boxes started the price rise in February 1994 when

exports and finished product demand began to take off. The prices for OCC were

volatile in 1994, doubling (on average) in two months, then redoubling again by

February 1995. They are at an all-time high at this writing (April 1995).

7)

The price behaviors of old newspapers (ONP), corrugated boxes (OCC), and

old magazines (OMG) are illustrated in Table 1 for the period March 1993 to

April 1994 and in Figure 1.

Table 1

PUBLISHED AVERAGE HIGH MARKET PRICES FOR ONP, OMG, AND OCC FOR THE PERIOD MARCH 1994 TO APRIL 1995

(In dollars per short ton fob shipper's dock)

Monthnear ONP OMG occ March 1994 April 1994 May 1994 June 1994 July 1994 August 1994 . September 1994 October 1994 November 1994 December 1994 January 1995 February 1995 March 1995 April 1995

20 21 23 34 50 66 71 83 88 95 95 93

103 123

26 26 26 29 34 46 49 58 70 78 85 99

109 118

41 55 83

108 145 128 101 83 85

101 126 166 201 215

Source: Paper Recycler

There is no precedent for this kid c?f price behavim, and the mills are

caught in a frenzy of buying and bidding prices up. The collection infrastructure

building (and rebuilding) has not caught up with demand. Meanwhile, the

recovered paper dealers and brokers, including solid waste haulers, are

scrambling, but enjoying prices never seen before. (One wonders why they even

2

w

Fig. 1 PUBLISHED AVERAGE HIGH MARKET PRICES FOR ONP,

OMG, AND OCC FOR THE PERIOD MARCH 1994 TO APRIL 1995 (in dollars per short ton) 250

200

150 A = CORRUGATED

1 ID0

+ = MAGAZINES 50

I I I I I I I I I I I I I I I I I I I I

I I I I I I I March April May June July Aug Sept Oct Nov Dec Jan Feb March April 1994 1994 1994 1994 1994 1994 1994 1994 1994 1994 1994 1994 1994 1994

Y want to increase recovery when their pay-off is increased costs and decreased

prices as supply and demand come into better balance.) The price behavior over

a long period of time is given in Figure 2 for OW, Figure 3 for OCC, and Figure 4

for OMG.

DEMAND FORECASTS TO 2000

In the minds of many professionals in the business of collecting,

processing, buying, selling, and using recovered paper there is a question as to

whether we have somehow reached the limits of recovery. My answer is a

categorical "NO." But, it isn't going to be easy to get recovery up to where it

should be and to sustain it at the levels of mill and export demand forecast for

the future. More about this later.

Several years ago we established beyond a doubt (except to the most hard-

core environmentalists) that postconsumer materials recovery will account for

over 90 percent of the growth in recovery for paper products. Thus, it is useful to

look at forecasts in terms of postconsumer recovery, even though the history and

forecasts of recovery may seem low when the preconsumer scrap is excluded. The

values for several categories of recovered paper are given in Table 2 and Figures 5

and 6 for the years 1992 and 2000 forecast.

4

Fig. 2

OLD CORRUGATED CONTAINER PRICES U.S. AVERAGE - HIGH RANGE

($/SHORT TON, F.O.B. SELLER'S DOCK) JANUARY 1970 - APRIL 1995

$/Ton

I I

I I

I 8

t I

I I

I I

Jan-70 Jan-75 Jan-80 Jan-85 Jan-90 Jan-95 Source: Official Board Markets. 1970-1 980.

Miller Freeman, Inc. 1980-1 995.

' ..

Fig. 3

OLD MAGAZINE PRICES

($/SHORT TON, F.O.B. SELLER'S DOCK) U.S. AVERAGE - HIGH RANGE

MARCH 1993 - APRIL 1995 $/Ton

O ! I I I I

Jan 1994 Jan 1995 Source: Miller Freeman, Inc.

Fig. 4

40--- - ---- - - -

04 I I 1 I I I I I I I

Jan-70 Jan-75 Jan-80 Jan-85 Jan-90 Jan-95

Sources: Official Board Markets 1970-1 980. Miller Freeman, Inc. 1980-1995.

Table 2

GENERATION AND RECOVERY OF SELECTED POSTCONSUMER PAPER GRADES, 1992 AND 2000

Grade

(In thousand tons and percent)

Generation Recovery % Recovery 1992 2000 1992 2000 1992 2000

Newspapers 12,550 15,250 5,470 8,800 44 58 Corrugated 25,400 30,220 13,395 18,000 53 60 Office Papers 6,680 7,785 2,370 3,500 35 45 Magazines/Related 5,180 6,370 915 2,800 18 44 Mixed Papers 17,555 19,690 2,340 4,000 13 20 Totals 67,365 79,315 24,490 37,100 36 47

- Percent increase 17.70 51.50 Source: Franklin Associates, Ltd. in "The Role of Recycling in Integrated Solid Waste Management to the Year 2000."

Again, bear in mind that all of these recovery rates would be significantly

higher if the preconsumer materials were included. For example, we recently

'+-I .-..

3 8

Thousand Irons

35,000

30,000

25,1000

20,1000

15,000

10,000

5,000

0

Fig. 5 GENERATION OF SELECTED

POSTCONSUMER PAPER GRADES, 1992 AND 2000

1992 2000

MAGAZINES MIXED NEWSPAPERS CORRUGATED OFFICE PAPERS PAPERS

-’ .

. .

Tons

18,000 - 16,000 - 14,000 - 12,000 - 10,000 - 8,000 - 6,000 - 4,000 - 2,000 -

’

Fig. 6 RECOVERY 6F SELECTED

POSTCONSUMER PAPER GRADES, 1992 AND 2000

1992 2000

60% II

53% r ‘I

.- I

MAGAZINES MIXED NEWSPAPERS ’ CORRUGATED OFFICE PAPERS

0 -cL

PAPERS

forecasted a recovery rate of 63 percent for newspapers and 71 percent for

corrugated (on a slightly different basis) in 2000.

It is also useful to look at these values based on whether they represent

residential or commercial sources. This is done in Table 3 and Figure 7 and

Figure 8 for residential sources and in Table 4, Figure 9 and Figure 10 for

commercial sources. Once again, the numbers in Tables 3 and 4 are for

postconsumer recovery and thus may seem low compared to total recovery.

Table 3

GENERATION AND RECOVERY OF SELECIED POSTCONSUMER PAPER PRODUCTS FROM RESIDENTIAL SOURCES, 1992 AND 2000

(In thousand tons and percent)

1992 Product Group Generation Recovery

Newspapers 10,700 5,200 Corrugated boxes 2,540 127 Office type papers 880 62 Magazines, catalogs 3,367 673 Mixed papers

Totals 11,411 1,826 28,898 7,888

2000 Generation Recovery Percent

13,000 8,060 62% 3,020 604 20% 1,000 200 20% 4,140 2,070 50%

12,800 2,966 23% 33,960 13,900

Recovery - % 27.3% 40.9% 41%

Source: Franklin Associates, Ltd. in "The Role of Recycling in Integrated Solid Waste Management to the Year 2000."

11

c c

...j

Fig. 7 RESIDENTIAL GENERATION OF SELECTED

POSTCONSUMER PAPER GRADES, 1992 AND 2000

1992 0 2000 Thousand

Tons 14,000 fl 12,000

10,000

8,000

6,000

4,000

2,000 0 I I NEWSPAPERS CORRUGATED OFFICE MAGAZINES I MIXED I I

PAPERS PAPERS

7,0100 6,000

5,0100 4,0100 3,0100 2,000 1,000

0

Fig. 8 RESIDENTIAL RECOVERY OF SELECTED

POSTCONSUMER PAPER GRADES, 1992 AND 2000

1992 2000 Thousand

Tons

9,0100 ’ 8,000 -

OFFICE MAGAZINES MIXED PAPERS

NEWSPAPERS CORRUGATED

PAPERS

Table 4

GENERATION AND RECOVERY OF SELECTED POSTCONSUMER PAPER PRODUCTS FROM COMMERCIAL SOURCES, 1992 AND 2000

(In thousand tons and percent)

1992 2000 Product Group Generation Recovery Generation Recovery Percent

Newspapers 1,850 270 2,250 740 33% Corrugated boxes 22,860 13,268 27,200 17,396 64% Office type papers 5,800 2,308 6,785 3,300 49% Magazines, catalogs 1,813 ' 241 2,230 730 33% Mixed papers 6,144 514 6,890 1,034 15% -

Totals 38,467 16,601 45,355 23,200

Recovery - YO 43.2% 51.2% 51%

Source: Franklin Associates, Ltd. in "The Role of Recycling in Integrated Solid Waste Management to the Year 2000."

WHERE ARE THE GREATEST OPPORTUNITIES FOR INCREASED

RECOVERY?

Using the same grade categories, we compiled a simple matrix identifying

the conventional source(s) of each grade (the traditional sources) and the places

where increased recovery infrastructure might best be pursued (Table 5).

14

Thousand Irons

30,000

20,1300

15,000

10,000

5,000

Fig. 9 COMMERCIAL GENERATION OF SELECTED

POSTCONSUMER PAPER GRADES, 1992 AND 2000

0

Thousand Tons

18,000 16,000 - 14,000 - 12,000 - 1 0,000 - 8,000 -

6,000 - 4,000 -

2,000 -

. . , . :Li

Fig. 10 . COMMERCIAL RECOVERY OF SELECTED

POSTCONSUMER PAPER GRADES, 1992 AND 2000

1992 0 2000

I

NEWSPAPERS CORRUGATED OFFICE 0

MAGAZINES I

MIXED PAPERS PAPERS

'1 Table 5

SUMMARY OF VARIOUS POSTCONSUMER GRADES OF RECOVERED PAPER-CONVENTIONAL SOURCE AND SOURCES OF EXPANDED RECOVERY

Grade of Recovered Paper Conventional Source Sources of Increased Recovery

Newspapers (ONP) Residential Commercial (Offices, hotels, transportation, etc.) Residential

Corrugated Boxes (OCC) Commercial (Retailers, Residential curbside and dropoff. factories, etc.) Small commercial generators.

Geographic diversity.

Office Waste Paper (OW) Commercial (Office buildings) Residential mixed paper curbside. Smaller buildings. Geographic diversity.

Magazines, Catalogs Distributors

Mixed Papers

Residential curbside plus dropoff, other. Offices.

'Offices, dealers sorting outthrows. other.) Offices.

Residences (Curbside plus dropoff,

Source: Franklin Associates, Ltd.

It should be noted that ONP is the only grade category in which the

conventional source is residences. The mechanisms used are: curbside

collection, multi-family collection, dropoffs, over-the-scales, paper drives, and

other means. Curbside collection programs have been put in place in large

numbers starting in 1988 and continuing to the present.

The other notable fact in this table is that residential sources represent an

opportunity for increased recovery. Thus, it is important to look at the role of

increased residential recovery and its potential.

17

I CURBSIDE COLLECTION IS EFFECTIVE BUT NEEDS ATTENTION

Residential sources of recovered paper are mostly old newspapers, but

relatively small quantities of the other grades listed in Table 5. There is a cost

and there is a huge challenge in developing an infrastructure that is both cost

effective and efficient, i.e., obtains high recovery of several grades of paper.

However, curbside collection comes the closest to an ideal system for serving

millions of people and millions of homes. A list of advantages and

disadvantages to curbside collection is given in Table 6.

Table 6

Advantages and Disadvantages of Curbside Collection

Advantages

.Brings collection system to residence

High participation

Multiple materials

Popular with citizens

Citizens “feel good” about recycling

Reduces wastes to be disposed

Puts materials in marketplace that

could not be collected by other means

Disadvantages

More expensive than landfill

Revenue low compared to cost

Creates new separate collection

system

Collection of materials not

necessiarly tied to marketplace

for scrap

The number of curbside programs increased from 5,404 in 1992, serving

77.0 million persons, to 7,265 programs in 1994, serving 108 million persons or

18

about 41 percent of the U.S. population.* The regional distribution of programs

and population served is given in Table 7 for 1994. This much is certain: For

newspapers, magazines, and mixed papers, curbside collection is the most

effective approach.

Table 7

SUMMARY OF REGIONAL CURBSIDE COLLECTION OF RECYCLABLES FOR 1994

(In millions of persons and percent)

Total Population % of Population Region Population Served Served

. Northeast 94.7 52.5 55 Southeast 46.4 19.8 43 Central 62.4 11.0 18 Mountain 15.0 3.5 23

21.3 53 Pacific 258.9 108.1 42

- 40.4 - Source: Franklin Associates, Ltd. based on BioCycle and Census data.

FACING THE HARD CHOICES FOR PAPER RECOVERY FROM

RESIDENTIAL SOURCES

Obviously, the commercial sector must bear a majority of the load for

increased recovery of postconsumer paper, especially OCC and OWP. However,

residential sources and curbside collectors must also play a large role for ONP,

OMG, mixed, and even OCC and ”office” papers.

There has been an interesting history of the recovery of materials for

recycling, especially for paper. During the late 1980s and early 1 9 9 0 ~ ~ collection

grew at a rapid rate, while demand did not increase as rapidly. During this period

* Steuteville, Robert. “The State of Garbage in America.” BioCycZe. April 1995. pp. 52-63.

19

(I the focus was markets, markets, markets. The paper industry was responding to

various forces at work and capacity to utilize recovered paper was increasing,

while exports were essentially flat.

When the demand (markets) caught up with recovered paper supply, the

growth of the collection infrastructure had begun to slow. The combination of

new capacity in mills and a rapid turnaround in exports turned our attention to

the fact that infrastructure and recovery, recovery, recovery are now the order of

the day. Apparently increasing recovery and expanding collection is now time

dependent and no easier than bringing on new mill capacity. Essentially what is

needed is the following:

1. Continued expansion of curbside collection

2. Rebuilding traditional infrastructure, e.g., paper drives where curbside

collection is not in place

3. Expanding (selectively) the paper products in collection programs.

Most curbside programs include newspapers; some include magazines

and/or mixed papers, and corrugated.

Forging more direct links of mills to processors, e.g., M u s , paper

stock dealers; to collectors (solid waste haulers and municipalities);

and to responsible entities at the local level, e.g., public works or solid

waste or recycling agencies.

Encouraging more efficient recovery of paper from programs via:

(a) educating consumers on a regular basis

(b) redesigning programs, e.g., converting every other week programs

4.

5.

to once a week

20

(c) focusing on the most important grades for each community, e.g.,

ONP, OMG, mixed papers that are market (demand) based instead

of solid waste driven

(d) emphasizing cost-effective collection and processing.

It must be recognized that we are in a new recycling era. When price

signals in 1989-1993 said "go slow" on increasing recovery, the collection

infrastructure continued to expand. Now with price signals calling for more

recovered paper, the infrastructure is not expanding rapidly enough in the short

term.

Companies that are dependent on, or becoming dependent on, recovered

paper from residential sources need to become more directly involved in the

infrastructure to collect and process recovered paper. This does not necessarily

mean setting up or owning the collection/processing systems. It does mean,

however, that targeted activity is necessary on the part of paper manufacturers to

help the infrastructure develop faster.

We suggest linking of local governments, private sector collectors and

processors, and recovered paper consumers. Essentially, what we suggest is

getting directly involved to invest in the development of infrastructure rather

than simply using buying price as the signal and then waiting for the

infrastructure to respond.

Finally, there are many relatively recent mill level entrants into the

marketplace. Few companies-experienced or still learning the recovered paper

business-were prepared for the turn-around that happened in 1994 and

21

continues today. While survival on a day-to-day basis is essential, it is also

essential that strategic planning take place so that the recovery of, and demand

for, paper be more in balance, and that transitional events, such as extreme peaks

and long valleys, not be the order of the day in the future.

One of the most important observations that can be drawn from the

BioCycfe survey is the regional distribution of curbside programs for 1994 coupled

with landfill tipping fees. The regions as we have defined them are shown in

Figure 11. Average tipping fees and population density show a general correlation

(Figure 11). (Tipping fees may or may not represent true costs, since tipping fees

are market driven.)

22

Fig. 11

Regional Divisions for Curbside Recycling

b

11

The next two figures show the percentage of population served by curbside

collection in 1992 and in 1994 (Figure 12 and Figure 13). A couple of key

observations can be made:

1. The growth in curbside collection was significant between 1992 and

1994, but slowed in 1994 compared to 1993.

2. The relationship between population density and curbside collection

is consistent also. Three of the five regions served 43 percent to 55

percent of the population in 1994 (Table 7).

There is probably a correlation with state solid waste recycling legislation as

well, but this was not documented here.

We can now draw two more general observations:

1. Recovery in the three highest regions can go even higher, but the

next increments of increase will be hard won because of the limits of

total single family dwellings and population bases that justify intense

collection programs.

2. The Central and Mountain states, at 18 percent and 23 percent of

population served, represent a great challenge. Actually, a few states

in these two regions, Minnesota for example, show numbers on the

high side. Again, the geographic and demographic characteristics of

these regions mean that much effort (but much opportunity) will be

required to grow curbside service and MRFs to their potential.

24

Fig. 12 Po ulation served by curbside collection o P recyclable materials by region, 1992

Population served (%) . ,

507 :iI 10

0 Northeast

/

Southeast Central 'Mountain ' Pacific '

Fig. 13 Po ulation served by curbside collection o P recyclable materials by region, 1994

Population served (%)

60

50

40

30

20

10

0

25

4

POTENTIAL RECOVERY OF ONP AND OTHER GRADES FROM CURBSIDE PROGRAMS

Two scenarios representing "average" curbside collection programs in a

metropolitan area were developed. We made some rather aggressive

assumptions about recovery potential, so we caution that while some programs

will do better, most will not likely reach their full potential without very

intensive activity. These scenarios are represented in Table 8 and Figure 14.

Table 8

AVERAGE RECOVERY POTENTIAL FOR TWO CURBSIDE PROGRAMS IN A METROPOLITAN AREA

(In pounds per single-family home per week and percent of total capture)

Category Scenario 1 ( lblweek) (% of total)

ONP 5.3 71 occ Mixed Paper Subtotal 5.3 71 All Others 2.2 29

Total All Materials 7.5 100

Total paper lblyr 277

Scenario 2 ( lblweek) (% of total)

5.3 45 0.7 5 3.5 30 9.5 80 2.4 20

11.9 100

493

Scenario 1: Base Case; Scenario 2: Expanded Case. Assumes 75% participation.

Source: Franklin Associates, Ltd.

Scenario 1 is a base case curbside program collecting ONP, glass

containers, steel cans, aluminum cans, PET bottles, and HDPE bottles. Only the

ONP is represented in the table. Scenario 2 is an expanded - materials case that

adds mixed paper including mail, OMG, OCC, and packaging. This is presented

in two categories. Note that the average recovery potential is high.

26

The potential recovery of a given collection system is based on a simple

formula of

1. Access to a collection system

2. Participation in the collection system

3. Capture of the target material by participants.

An example for a curbside program for newspapers could be:

90 percent access; 85 percent participation; and 90 percent capture. The result is:

0.90 x 0.85 x 0.90 = 69%.

For a drop-off system in an urban area, the formula may be different: 100

percent access; 20 percent participation; 100 percent capture. The result is:

1.00 x 0.20 x 1.00 = 20%.

27

R N 00 0

crl

Fig 14

AVERAGE RECOVERY POTENTIAL FOR TWO CURBSIDE PROGRAMS IN A METROPOLITAN AREA

(in pounds per single-family home per week and percent of total capture)

3.0

2.0

1 f .o

E3 Senario I 0 Scenario2

45' I

0.0 ONP All Other

Materials ONP

30%

20%

5%

/ OCC Mixed AllOther

Paper Materials

3

collection costs + processing costs (MRF or packer) - revenue = net cost or

revenue. .

The collection and processing costs can be estimated in a relatively predictable

range of $125 per ton to $175 per ton. The revenue is more variable and may vary

from barely covering processing costs to nearly enough to cover collection costs are

well.

One 'of the key issues today is what the revenue to communities and/or

private contractors will be in the future. Certainly the market prices from 1989 to

1994 required a high subsidy to collection systems. The market prices of today are

unlikely to be sustainable for much longer. Thus, the unanswered question of the

day is whether the residential paper recovery system will be expanded enough to

bring supply in line with demand, and whether mill and export demand in turn

will support the supply without leading to another collapse of value of the

recovered materials. We have one to two years to bring supply and demand into

balance so that neither side is unduly burdened or rewarded.

,i

29