A few years ago, during the height of the pandemic, the paper recycling market was robust as consumers turned to online shopping to avoid shopping in brick-and-mortar stores. According to the American Paper and Forest Association, in 2022, the paper recycling rate was nearly 68 percent, which held steady to the 2021 rate. Nearly 50 million tons of paper were recovered for recycling in 2022.
Josh Padnos, who leads the paper division at PADNOS, a recycling company headquartered in Michigan, said they are seeing more cardboard scrap is being generated from households due to the increase of online shopping.
“This has led to a push for more recycling access for households, which has been a positive for the recycling industry as a whole,” Padnos said. “One of the issues facing paper recyclers is a decrease in the ‘away from home’ paper sales. Large offices are less populated, which has led to a decreased demand for printing paper, paper towels and toilet paper.”
Other grades of paper facing challenges as the world becomes more digital are newspapers, magazines and printing and writing papers. As Padnos pointed out, these were all once robust and important grades in paper recycling have diminished greatly in the last decade. Another short/near-term trend has been a decreased supply in brown-grade generation by grocery and other brick-and-mortar generators.
“Inflationary pressures result in consumers continuing to spend at the same level, but through purchasing fewer SKUs,” Padnos says. “As less product in absolute numbers leaves the shelves, there is less packaging generated from decasing.”
Scott Williams, director of recycling, DS Smith North America Packaging and Paper, added that the supply and demand for old corrugated containers (OCC) are important factors for DS Smith, as the growth in demand for certain grades of recovered OCC are outstripping supply.
“There is significant momentum across the industry to divert all materials from the landfill, and the waste companies we partner with specifically are committed to increased sustainability and using technology to recover more paper for recycling,” Williams said. “Helping to generate the increased demand are start-ups of fiber mills requiring higher recycled OCC content.”
Long-Term Impact
Not surprising, COVID had a big impact, long and short term, on the packaging and recycling industry. As people stayed home and turned toward online shopping, corrugated box manufacturing rose sharply, as did the number of boxes ending up in the recycling stream.
“That boom created a bubble which burst in Q4 of 2022 as we saw manufacturers slow down and scrap paper prices fall off sharply. We are also seeing sharp swings both up and down in commodity values over the last three years which is a new trend in the industry,” Padnos said.
The industry is returning to an equilibrium, compared with when we were in the pandemic.
One of the biggest challenges facing the paper recycling industry is maintaining a quality stream of supply in material in the face of increased competition. As Williams explained, this is vitally important for DS Smith as they operate a recycling facility in Reading, Pennsylvania. Adjacent to the recycled paper mill they operate, that mill relies on the ability to secure quality supply stream.
So what is Padnos seeing in terms of the growth potential of the industry? And what are the biggest contributing factors to this growth?
Padnos noted that there have been a handful of container board mills opening throughout the U.S. to keep up with the bustling demand caused initially by the pandemic. This new paper mill capacity has generated more demand for scrap paper, which has been good for the recycling industry. There also seems to be a recent effort by companies to move away from plastic packaging and more toward fiber packaging.
As a company in the fiber-based packaging space, DS Smith expanded a few years ago after a boom in e-commerce, associated with the pandemic. Now, after that spike in demand, the key to a strong business is to operate more efficiently when there is less material coming into the waste stream.
“The key to future success is to increase our efficiency in procuring fiber and operations, as well as looking for some stabilization in the supply curve to meet demand,” Williams said.
The recycled linerboard DS Smith manufactures is well accepted in the market. Today, there are growth opportunities for the company based on increasing demand for recycled content, but there also needs to be balanced growth in terms of material supply and manufacturing.
“There is work being done in the industry on technology that will improve supply collection and processing,” Williams said. “Improvements in the sortation technology at MRFs to take previously discarded material and get it into the recycling stream will be a big benefit for the industry.”
In addition, industry-specific regulations are impacting the paper recycling industry.
“Extended Producer Responsibility (EPR) laws are something to keep an eye on,” Padnos said. “Several states have already passed such laws and several other States are discussing varying levels of implementation.” PADNOS is following EPR closely and communicating to both their customers and vendors as to how it may impact recycling as the industry moves forward.
Williams pointed to timber industry regulations within the EU and how they have tightened the supply of virgin timber, which subsequently can affect OCC prices. These regulations are not in effect in the U.S., but similar regulations could conceivably make their way to the States over time, which would bring similar pressures on OCC prices here.
Future Outlook
Environmental concerns are growing amongst consumers and recycled paper products are preferred. In addition, ongoing government initiatives are expected to drive demand for recycled paper by imposing regulations on the use of non-biodegradable packaging.
Future Market Insights indicated the paper recycling market value is expected to be $7.5 billion in 2024, up from the 2023 valuation of $7.1 billion.
“The future for container board recycling looks bright. Paper packaging manufacturers have bet big in recent years that the trend created by COVID will continue by adding manufacturing capacity,” Padnos said. “This should create stronger demand for scrap paper recycling and an increased supply in the marketplace. We have been on the forefront of not just paper but also plastics and metal recycling for over a century, and we are committed to finding new ways to lead and innovate.”
Williams agreed that the industry will continue to innovate around sustainability and circularity as it faces a renewed growth potential.
“DS Smith integrates circularity into the design for all of our packaging offerings. We are solving problems by creating new, sustainable packaging solutions,” Williams said. “By innovating and acting responsibly, we can create a growing and stable market for recycled fiber-based products.”
