by Owen Stuart
October 9, 2019
Trade of paper and paperboard products has been roiled by recent environmental initiatives in China. In January 2018, the Chinese government began enforcing its National Sword policy, which banned imports of recycled paper with contamination (presence of foreign objects) rates over 0.5%. Furthermore, as part of the US-China trade war, China has levied tariffs on recovered paper imports. How has this impacted the US paper recycling industry?
As China’s economy expanded rapidly, demand for foreign raw material feedstocks for the burgeoning manufacturing sector led to a mutually beneficial trade relationship: US material recovery firms would collect American recyclables and ship them to China, where the raw materials would be used in manufacturing. Some estimates place Chinese consumption of scrap paper at 55% of the world’s supply. However, imports were largely unregulated, which meant that the contamination rates of the recyclables (e.g., paper collected for recycling) were highly variable. Low quality batches of recyclables that China imported would often be illegally disposed of, polluting the environment. In response, China implemented the National Sword policy, which among other restrictions, banned imports of recycled paper that were over 0.3% (later changed to 0.5%) contaminated.
In addition, as part of the US-China trade war, the Chinese government imposed 25% tariffs on recovered paper imports in August 2018. A new round of US tariffs in June 2019 encouraged the Chinese government to impose an additional 5% tariff to be collected in December 2019, bringing the tariff rate up to 30%.
The imposition of National Sword caused a backlog in US recovered paper exports. Some suppliers attempted to ship to other Southeast Asian countries, which responded by restricting imports. For example, Vietnam stopped granting licenses in July 2018 for recyclables due to port congestion caused by illegal imports.
In addition, the volume of recyclable paper that other Southeast Asian countries are willing to take in is far outstripped by supply, creating a backlog. The backlog has placed enormous downward price pressure on recovered paper prices, making recovery far less profitable. US prices for recovered residential papers dropped to $10 a ton in August 2019, down from $104 a ton in August 2017. Similarly, corrugated container prices have dropped from $171 a ton in March 2017 to $28 a ton in August 2019.
As a result of the National Sword policy, as well as the ongoing trade conflict between the US and China, some Chinese companies have begun purchasing US paper mills:
To avoid the tariffs and the National Sword regulations, these companies will produce recycled paper pulp in the mills (paper pulp is not subject to the National Sword regulations) and ship the product to China. The tariffs and the National Sword policy constrained Chinese imports of paper, which has forced resource-hungry Chinese packaging companies to pay more for their source materials or find alternate ways to import it.
While the glut has eroded recycler’s revenues, it has benefited paper and packaging companies by decreasing prices drastically for one of their critical feedstocks – recovered paper. The low prices of paper have also encouraged incorporation of more recycled material into packaging, though incorporation will still be restrained by performance and aesthetic requirements. US paper mills have also expanded capacity to recycle material. For example, North Pacific Paper Company (Norpac) intends to process an additional 400,000 tons of recycled paper by converting a third of its production capacity to recycled paper.
While the shift away from exporting recovered paper to China greatly impacted the US recycling industry, it may serve as an opportunity for additional domestic recycling capacity to develop.
We have you covered! For additional information and analysis of US industry trends, see Paper & Paperboard: United States, a report published by the Freedonia Focus division of The Freedonia Group. This report forecasts to 2023 US paper and paperboard production and demand in short tons. Total production is segmented by product in terms of:
In addition, total shipments and total demand are forecast to 2023 in nominal US dollars at the manufacturer level.
To illustrate historical trends, total demand, total production, the various production segments, and trade in short tons are provided in annual series from 2008 to 2018. Total shipments and total demand in US dollars are also provided in annual series from 2008 to 2018.
While you’re there, check out some of our related reports, which include:
Owen Stuart is a Market Research Analyst with Freedonia Focus Reports. He conducts research and writes a variety of Focus Reports, and his experience as an analyst covers multiple industries.
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