This report provides an update to the market situation discussed in our first Paper Market Situation Report which was published in 2010. This update looks at the key developments since that report was published including trends in paper collections and recycling, risks and opportunities in the main end markets for the UK's recovered paper, trends in recovered paper prices and policy and legislative issues.
Key themes to emerge from this report
Overall UK paper and card packaging placed on the market (POM) has increased by 5% between 2014 and 2019 to 5Mt. Growth has been led by the retail home delivery sector, which added 0.3Mt of paper packaging. The growth in online deliveries of both grocery and non-grocery goods sparked by the COVID-19 lockdown is likely to have accelerated this trend.
Other paper sectors have also been significantly affected by COVID accelerating existing trends. In particular, the decline in newspaper consumption has been stark. Over the past decade since the previous Paper Market Situation Report UK consumption of newsprint is estimated to have halved. The events of 2020 appear to have accelerated this trend as media consumers appear to have migrated to digital news, rather than a physical newspaper.
The overall UK fibre collection rate (both packaging and non-packaging) increased by 7 percentage points between 2010 and 2014 to hit 69%. Since then however the collection rate has broadly plateaued, as declining consumption has been balanced by lower tonnages recovered for recycling. In the period 2018/19 UK Local Authorities are estimated to have collected 2.6Mt of fibre from the household waste stream while 4.7Mt were collected from the commercial and industrial (C&I) sector.
Policy changes are likely to support further improvements in fibre recovery. Defra’s Resource and Waste Strategy (R&WS) outlines a number of policies that aim to improve both the collection and end markets for recovered paper and card, as well as other materials. Together these policies are likely to increase the quality of collected fibre, and – by virtue of its high recyclability – result in increased consumption of paper and card packaging.
The UK remains dependent on export markets for recycling. Between 2010 and 2016, UK based recycling as a percentage of paper collected fell from 46% to 37%, although it has since rebounded to 41% in 2019. The situation is more acute for those grades where there is an imbalance between supply and demand. For example, the UK remains reliant on export markets for 70% of overall old corrugated cardboard (OCC) and mixed paper and board that we recover for recycling.
Tighter import restrictions in major end markets highlight the importance of diversifying the UK’s end markets and the need to produce high quality materials. In mid-2017 China announced that from the beginning of 2018 it would be heavily restricting the amount of recovered materials that it would import, and the level of contamination that it would accept. Accounting for 70% of total UK recovered paper exports as recently as 2016, China only accounted for 5% in the first half of 2020.
Turkey and India now account for almost half of UK recovered paper exports. Together these two countries may see paper mill capacity rise by a further 7Mt over the next few years to serve projected domestic consumption growth. While these and other end markets in South East Asia represent an opportunity in the short to medium term, eventually their own domestic collection volumes are expected to increase, reducing the need for imported material.
The UK isn’t alone – many other countries in Europe are experiencing similar structural changes to the UK. Almost 4Mt of additional corrugated case capacity is expected over the next four years in Europe. Meanwhile, the conversion of former newsprint machines in the UK and on the continent represent an opportunity to ensure sufficient end markets for the UK’s recovered fibres.
Challenging paper recycling economics a headwind for expansion. The high cost of electricity in the UK along with increases in other input costs, coupled with lower output prices has restrained the returns available to paper mills. Reducing the carbon intensity of power feeding the mill is an opportunity to both save carbon and reduce costs.
In 2019 the average recycled content of paper and card manufactured in UK mills was 73%. This compares favourably to the rest of Europe and is on a similar level to paper manufactured in Asia.
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Paper Market Situation Report 2020
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