With DHG prices set to rise new sources of recovered paper for tissue must be found

For ten years, the use of recycled fibre has been steady at about 50% content. This level is expected to be stable to slightly upward. For tissue produced from recycled fibre, recovered paper costs are a significant component of overall costs. Recovered paper is predominantly in away-fromhome products, and varies by region with North America, Europe, and the Middle East having substantial recycled fibre based tissue production. Much of Asia’s new tissue capacity and a substantial amount of Latin America’s are based on virgin fibre.

The world’s primary source of deinking high grades (DHG), which are the grades of recovered paper used by the tissue sector, is North America and Europe. These developed economies have large usage of printing and writing paper grades, which make up the available supply for recovery as DHG.

The largest grade of DHG is sorted office paper (SOP) followed by the ledger grades and coated book stock (CBS). Traditionally, the source of these grades has been offices and printer scrap. In the last five years, a major new source of SOP has been confidential document destruction and shredding of office papers due to both privacy and legislative/regulatory developments in certain areas of the world, primarily North America followed by Europe. Another large source of DHG, the postal services of the world have been stagnant to declining in developed economies as electronic communications replace hard copy mailings.

On the demand side, while tissue is the largest user of DHG, there are several other uses including back into printing and writing papers production and also making market freesheet deinked pulp. The use in printing and writing papers is limited to several areas of the world, primarily in the United States, some western European countries and India. The reason for the limited use of DHG in printing and writing papers is that it is the most uneconomical form of paper recycling because of high yield losses and processing costs in the deinking process.

In comparison, producing away-fromhome tissue products from DHG is an economical fibre source and is the reason why increased usage has occurred over time. The production of freesheet deink pulp is increasing again primarily in a few developed countries due to interest in sustainability and increased recycled content in a variety of products such as magazines, packaging grade, and paper cups.

“As the use of recovered paper for tissue products continues to grow there are a number of changes occurring in the available supply of these raw materials.”

But a major problem with the supply of DHG looms on the horizon and is even obvious today. The use of printing and writing papers in developed economies is declining rapidly in the US and several other countries. This will constrain the supply of the papers that make up DHG. Even with growth in the use of printing and writing papers in Asia, eastern Europe, and several other regions, the decline in North America, western Europe, and Japan will more than offset this new supply.

The other major source of DHG, the printing industry, is also on a steady downturn in the developed world. While the global recession of 2008/2009 caused a downturn in all paper production, the printing/writing, and printer sectors were down dramatically not just due to the recession but also a structural trend of producing/printing fewer hard copy documents.

What this means for recycled fibrebased tissue producers is higher prices for DHG. In the first half of 2011, world prices for DHG were at some of their highest levels ever. Only the recent downturn in the price of bleached short fibre pulps has tempered DHG prices. While we will always have peaks and valleys in commodities like DHG, the overall trend for pricing over the decade is upwards.

However, DHG prices are bounded by the costs for bleached hardwood and eucalyptus pulp as they can be readily substituted for recycled fibres if prices reach levels that are uneconomical.

New sources of recovered paper for recycled tissue must be found. There are several areas that have shown promise, one being single stream recovery in the commercial sector, increasing in the US, and which will recover more materials from the office workplace. A critical issue is will a high enough quality SOP result from this type of collection.

Another possibility is residentially sourced materials. The amount of printing and writing papers in that stream has increased over twenty years, especially since newsprint has declined. However, even household usage is expected to decline.

Another potential source is the collection of post consumer polycoated bleached paperboard packaging. It is our expectation that more and more of these grades will be recovered, however, their total available supply is fairly small.

All businesses face challenges as condition change. The source and usage of recycled fibre in the tissue sector presents significant issues that the industry is working toward answering.