Assessing Domestic Capacity to Consume Fibres from Ontario Blue Box Program

Background

A few years ago, if you asked any North American Material Recycling Facility (MRF) where their recovered curbside newsprint was going, chances are they would tell you that some or all of it was being exported to China.

During the past eighteen months, the Chinese government introduced the National Sword and Blue Sky regulations to curtail the amount of contamination from imports of recyclable materials being brought into the country. These restrictions resulted in North American municipalities and MRF processors scrambling to find alternative markets for their curbside fibre.

These recent changes in export market conditions prompted the CIF to request ReMM to conduct a study on the available domestic capacity for Ontario’s fibre, and identify the challenges and opportunities for Ontario municipalities to access existing or new fibre capacity.

Domestic End Markets

With the closure of North American newsprint mills during the past fifteen years, there has been a high dependency on the Chinese newsprint mills to consume North American curbside fibre. However, with the recent Chinese export restrictions, North American end markets have indicated that they will begin using higher amounts of curbside fibre in their mills. Chinese owned companies are also actively investing in North American mill capacity to recycle domestic fibre and produce pulp and paper products to export to China.

ReMM identified three primary North American end market sectors that generally consume Ontario’s curbside fibre (see Figure 1):

1. Molded Fibre Producers,
2. Cellulose Insulators, and
3. Containerboard Mills

Figure 1: (from left to right) Molded fibre products, cellulose insulation, and containerboard

Containerboard mills provide the largest market for Ontario’s curbside fibre while the cellulose industry and the molded fibre industries provide smaller niche markets for Ontario’s fibre as summarized in Table 1.

The research findings also suggest that there are approximately 2.5 million tonnes of new processing capacity scheduled to be developed within the next three years. The reader is, however, cautioned that commitment to development of this additional capacity will be subject to continued favourable market conditions

The following table summarizes the reported capacity as well as the forecasted future capacity at mills that may impact the domestic markets for fibre collected in Ontario’s Blue Box Program:

Table 1: Current and Future Capacity for Ontario’s Curbside Fibre

*Note:  The total of the Annual Capacity exceeds the detailed grade information as specific grades were not always provided by sources

Opportunities and Challenges

While there is a considerable amount of capacity for Ontario’s fibre, the findings indicate there are challenges and opportunities for Ontario municipalities to access the additional end market capacity as summarized in Table 2 below.

Current Market Conditions

The quality restrictions imposed by China continued throughout 2018 and are expected to remain in place for 2019. Other countries (e.g. Taiwan, Indonesia) also imposed quality restrictions to prevent North American low-quality fibre materials from entering their countries.

However, in January 2019, the Chinese government approved a larger volume (5.5 million tonnes) of recovered paper fibre to be imported in early 2019 compared to 2018 (2.5 million tonnes) (see Figure 2). This could suggest higher OCC and recovered fibre imports into China in 2019. While there are additional permits increasing the amount of foreign fibre into China, the quality restrictions remain in force.

Figure 2: Recovered Paper import permits 2018-2019

Courtesy of Resource Recycling: China’s permit move is good news for fiber exporters, January 8, 2019

Lessons Learned and Future Considerations

The key lessons learned for Ontario municipalities are:

1. To minimize dependency on export markets as additional North American capacity is implemented. It is also important to determine whether the financial benefits of exporting fibre outweigh the potential costs of downgrades and/or rejections.
2. To work with collection and MRF processors to focus on producing fibre that meets the quality specifications defined by domestic and export end markets.
3. There is sufficient domestic capacity but end markets often have contracts or long-term relationships in place so Ontario municipalities may need to displace existing suppliers by either accepting a lower price or producing higher quality fibre.
4. Consider China’s National Sword and Blue Sky initiatives as an exercise to determine the benchmark quality and value of your material and develop an appropriate action plan.
5. Consider the value of long term relationships vs spot market pricing.

While fibre markets continue to rebound, there continues to be pressure from all end markets for MRF’s to produce material that complies with specifications, contains minimal contamination and allows end markets to maximize their yield. Therefore, moving forward, Ontario municipalities should consider:

1. Investing in innovative technology upgrades to produce higher quality fibre.
2. Evaluating the feasibility of a centralized clean-up system for Ontario’s curbside fibre to ease the burden on individual municipalities.
3. Focusing on approaches to access domestic end markets.
4. Staying informed about challenges and opportunities related to fibre end markets.

For more information

View the full report or for more information, contact CIF Staff or Atul Nanda at atul@remm.ca.

Join us at the May 16 ORW to learn more about responding to current market conditions for fibers and other materials. Sign up today | See ORW agenda