Amid Recycling Crisis, Chinese Company Reinvigorates U.S. Paper Industry

PHOENIX – The U.S.-China trade war has crushed the packaging products industry over the last several months. There is no relief in sight for business owners paying the bill. Last Friday, the Trump administration announced increased tariffs on several products, including packaging, to 25 percent. And Monday, China announced retaliatory 25 percent tariffs starting June 1, that also hit paper products.

For western cities like Phoenix, which have been wholly dependent on the U.S.-China relationship to fully process recycled paper, the trade war is not really about trade. It’s about business and a hard lesson in how U.S. and Chinese business owners must work together to keep one industry alive.

Brian Boland is a paper guy. He started in paper in 1995, and he’s seen things change dramatically.

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“People hear that you have got foreign investment coming into the United States, but one thing to remember again, to see growth, and to see investment in these facilities that have been here literally since the late 1800s, it creates jobs. It’s really, really cool. It’s really powerful stuff. And regardless of who owns the thing, that investment is a good thing.”

Brian Boland is vice-president of government affairs and corporate initiatives at ND Paper. Boland started in paper in 1995 in Michigan, just out of school. He’s at ND’s Ohio office. He says his plant sounds just like any other U.S. plant.

Boland’s mill had been shut down for decades, now bought and renovated by ND Paper, a wholly-owned subsidiary of Nine Dragons Paper Holdings, the largest paperboard company in China and one of the largest in the world, with more than 15,000 employees worldwide, including those like him, in its newly developed U.S. operations.

ND Paper has been quietly buying up closed down U.S. paper mills, starting with those previously owned by Catalyst paper, the Canadian company that still owns the shuttered mill in Snowflake.

With an ongoing trade war with China, these buy-ups and buy-outs are making industry insiders nervous, understandably. But, businesses owners say the industry needs to be saved by its operators.

“When I say the business model is broken in the U.S., it is broken,” said Pete Keller, vice president of recycling and sustainability at Republic Services, the second-largest waste company in the U.S., based out of Phoenix.

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“Eighteen months ago, cardboard was trading for around $150 a ton. Mixed paper and other paper products were trading for around $100 a ton. Cardboard today is trading for about $50 a ton, and those other paper grades are trading for around zero.”

Seventy-five percent of Republic Services’ business is dependent on paper. Keller says a lot has changed in the last year.

“I would say this, relative to recycling. If the material that’s being recovered and aggregated and ultimately marketed isn’t going back into a manufacturing process, isn’t getting reintroduced as some other product, then it is not recycling,” he said.

Prices in the U.S for recycled cardboard are at a decade low since China stopped buying the U.S. product. In January 2018, China established its National Sword policy, an effort to clean up its own environment and reduce pollution. That included drastically changing its import policy on recycled paper, in addition to tariffs on paper products. The global recycling business went into a tailspin, hitting recycled paper particularly hard.

“Those products are not selling at the price they used to and in some cases, people are paying to move their paper. It’s affecting municipalities, a lot of operations in terms of the revenues they are accustomed to receiving from selling recycling are not there anymore and so those shortfalls, for example, in Phoenix, those shortfalls in budget are are things we have to make up,” said Joe Giudice, assistant public works director for the city of Phoenix.

China consumes approximately one-quarter of all global paper products. About a quarter of their consumption has been imported, since China does not have the natural resources to keep up with its population. In 2017, China imported 26 million metric tons of scrap paper. In 2018, that dropped to 15 million metric tons — 2019 is on pace to drop even more.

Giudice said the solution to the trade problem is not trade negotiations, but with U.S. mills which need to produce cleaner products across the U.S. The mills being bought and renovated by Chinese-owned ND Paper already do, since they produce paper pulp, a finished product that is contaminant free and can be exported to China as is, even with an added tariff.

“So essentially, they are making their new cardboard boxes or products here in the United States and then shipping them back to China to put the toys and other products that they are manufacturing that are then going to get back in the box and go back to the United States or wherever else people are buying them from, so it’s this very unique international trade situation going on there,” Giudice said.

China ups ante in trade war, imposes tariff that could doom U.S. paper recycling

PHOENIX – Most of the headlines from the trade war between China and the United States have focused on tariffs on aluminum and steel, but China also has placed a levy on recycled paper pulp. While not as well known, the tariff could bankrupt an already taxed recycling industry in the United States.

China’s latest round of retaliatory tariffs against the U.S., announced in August, includes something called “recovered fiber materials,” basically, the recycled paper, newspaper and cardboard that we put in the recycle bin. Trucks collect paper, bundle it at local centers and sell it as bales, mostly to China, to be incorporated into new products. It’s the cycle of recycling. And now there’s a potential tariff on those exports.

“This is a huge impact on the paper business in the United States,” said Baizhu Chen, a business professor at the University of Southern California. “By taking a unilateral position against other countries, imposing a tariff against other countries, the U.S. is causing huge damage on the global trading system.”

The tariff announcement hits a recycling industry already weakened by China’s announcement in January that it no longer would import most plastics and certain other recycled goods from the United States.

“Certainly, the impact has been considerable to us in the first quarter,” said Pete Keller, vice president of recycling and sustainability for Republic Services. “So, increased cost, decreased revenue, that doesn’t make for a winning equation in today’s marketplace.”

Since China’s import ban on most U.S. recycled products, municipal recycling programs have spent much of 2018 in crisis mode. And some U.S. cities can’t make it work. Phoenix, though, has had an edge, according to Rick Peters, deputy solid waste director for the city.

Phoenix Public Works Solid Waste Superintendent Chad Hardy oversees production at the 27th Avenue Transfer Station. Phoenix continues to export recycled paper to China. (File photo by Miles Metke/Cronkite News)

“Part of it is the dry climate from Phoenix really makes the materials being dry makes them easier to separate,” he said.

Phoenix has continued to export recycled paper to China during 2018, which has been key to keeping the program profitable. But that all changes with the tariff.

Chen says a tariff is negatively impacting both American and Chinese businesses.

“This will have a big impact in China on the paper industry. They are short of feedstock,” he said. “And all the businesses are thinking about where to get that feedstock and paper if they are short of paper pulp. And also have an impact on the recycling business in the United States.”

China is the top importer of U.S. recycled paper. China imported 2.73 million tons of U.S. cardboard during the first half of 2018 and 1.4 million tons of all other U.S.-sourced recovered fiber. And without China as the buyer of American recycled paper, the future of U.S. recycling is in doubt.

“China’s economy has been booming for so long,” Peters said, “that they developed a huge appetite for our recycled materials so they could turn it into new products and then ship them overseas to us in their shipping containers. And then the next thing you know, it was like 40 percent of U.S. recyclable paper was going to China. And this continued for many, many years.”

Trade between the two countries is not even. Last year, China’s exports of goods and services to the United States totaled about $500 billion, which dwarfs China’s imports from the U.S., which totaled about $150 billion.

“In time, it’s going to take time, probably maybe several years, if China does not go back to buying, it’s going to take several years for demand and supply to get matched back up again to where the price of mixed paper and newspaper goes back up,” Peters said.

Some businesses are not waiting for Beijing and Washington, D.C., to resolve the dispute. China’s largest paper manufacturer has begun buying up U.S. paper mills, which allows it to not only sell directly within the U.S. but also ship paper remanufactured in the U.S. back to China without paying a tariff.

Chen said Nine Dragons probably is the largest paper company in China. It has been importing waste paper from the United States and was considering investing in the United States “to extract pulp from the papers and then sell the pulp into China, which is not in the ban, but now there’s a tariff.”

In May, Nine Dragons bought two pulp and paper mills in Maine and Wisconsin from Catalyst Paper Holdings, a Canadian company that now owns a closed paper mill in Snowflake in northern Arizona. In August, China’s third-largest recycled paper producer signed a deal to acquire a mill in Kentucky.

Both Catalyst and Nine Dragons declined comment on this report.

“So the strategy is coming to invest in the United States, instead of exporting the waste paper directly … they buy the paper mill to process the waste paper and to turn it into the paper pulp. So, theoretically, these are much cleaner, these are not classified as recycled products.”

Arguably, as Chen says, if the new product is not classified as recycled paper, it would avoid a potential tariff.

“So now, instead of processing that in China, and Nine Dragons, for example, those companies, they process the waste paper in the United States,” he said.

And it will be manufactured in a paper mill now owned by a Chinese company, not a U.S one, leaving questions about the future of the U.S. recycling business.

This story is part of Elemental: Covering Sustainability, a new multimedia collaboration between Cronkite News, Arizona PBS, KJZZ, KPCC, Rocky Mountain PBS and PBS SoCal.