PROJECTED IMPACTS ON SOUTHERN TIMBER MARKETS OF ACCELERATED PAPER RECYCYLING Peter J. Ince1 ABSTRACT The accelerating use of recycled fiber in paper and paperboard production in the United States represents a major shift in technology. With accelerated paper recycling, pulpwood consumption is projected to grow more slowly than previously anticipated. Relative to long-range timber market projections made several years ago, accelerated recycling would have the greatest timber market impact on the South, where more than half the U.S. pulp, paper, and paperboard is produced. Much of the projected increase in recycled fiber use will occur in product grades now produced mainly in the South from softwood pulpwood, such as unbleached kraft board and newsprint. Thus, accelerated recycling would tend to offset the future demand growth for softwood pulpwood more than for hardwood, and it would mainly offset demand growth in the South. This would extend softwood timber supplies in the South, further leveling delivered price differentials between hardwood and softwood pulpwood and leveling projected increases in softwood sawtimber prices. Although extended wood and fiber supplies also result in projected increases in output of paper, paperboard, and other forest products in the South, timber prices should be more stable in the decades ahead than previously projected. INTRODUCTION Technology in the North American paper and paperboard industries is significantly shifting. By all accounts, paper recycling is accelerating and will continue to accelerate in the 1990s. For example, until just a few years ago only 8 of 36 North American newsprint producers were reported to be using recycled fiber. Today, virtually the entire newsprint industry is considering how to use recycled fiber (Wirthlin Group survey, reported in American Papermaker, August, 1990, p. 27). By 1995, the “virgin only” newsprint producer should be an exception. rather than the rule. According to the survey, one-third of the newsprint manufacturers in North America said that by 1995 they will produce nothing but recycled newsprint (newsprint with high proportions of recycled fiber). This major shift in production technology is being stimulated by the so-called landfill crisis– declining availability of landfill space amid public opposition to siting of new landfills for solid waste. This has precipitated public willingness to participate in recycling programs, legislative initiatives aimed at increased recovery of materials for recycling, increased supplies of recovered paper in particular, and increased market and consumer demands for products with the “recycled” label. With accelerated recycling, pulpwood needs will grow more slowly than previously projected. On the other hand, over the past decade tree planting and reforestation have been maintained at high levels in the United States. In the South, industrial owners will likely continue to take advantage of economic opportunities for converting nonplantation forests and nonforest areas to new pine plantations, at rates comparable to those of the past decade (Adams and Haynes 1991). Those rates of converting to plantation will probably be maintained in the South until about the year 2010, when most of the economically attractive opportunities will have been exploited. Thus, abundant 1 Research Forester, USDA Forest Service, Forest Products Laboratory, Madison, Wisconsin. The Forest Products Laboratory is maintained in cooperation with the University of Wisconsin. This article was written and prepared by U.S. Government employees on official time, and it is therefore in the public domain and not subject to copyright. 115 economic opportunities exist for forestry investments in the South, even if timber prices remain constant in real terms (Haynes 1990). Although trends in converting existing forest land to other uses are a cause for concern, a more serious concern in recent years has been the potential timber market impacts of conserving endangered species (such as the northern spotted owl) and related old-growth timber issues. This report compares some projected timber market consequences of these trends. However, note that we continue to research timber market impacts of wastepaper recycling for the 1993 RPA Assessment Update, with a revised analysis expected in draft form in early 1992. Thus, results presented here may be viewed as preliminary. In the Forest Service we have used long-range economic models of regional markets that project timber growth and removals, industry capacity expansion, and supply, demand, and prices for principal products of the forest sector across major regions. The models simulate market conditions and behavior over time, including industrial responses to resource conditions. The models have been used to support the RPA Assessment of the Forest and Rangeland Situation in the United States (USDA FS 1989). The Timber Analysis report provides an overview of the 1989 RPA Assessment studies related to timber (Haynes 1990). In this report, long-range projections were obtained from the same set of economic models used by the Forest Service in the 1989 RPA Assessment. This report includes some more recent projections made after the 1989 RPA Assessment document was published, but all projections are from the same set of economic models (with adjustments in assumptions to simulate different scenarios). PAPER RECOVERY AND UTILIZATION Figure 1 shows the recent history of the wastepaper consumption rate for recycling in the United States, according to Bureau of Census data. Historically, the rate of consumption per unit of paper and paperboard declined after World War II, leveled off around 1970, and then began to rise gradually in the mid-1970s.2 The trend in the historical data is downward, although the rate of consumption has turned upward since the 1970s. Thus, until just a few years ago, reasonable long- range projections showed the wastepaper consumption rate increasing only gradually in the decades ahead (Fig. 1). The projections shown in Figure 1 are in fact the Base projections for the 1989 RPA Assessment, which were developed 3 years ago. Although wastepaper consumption was projected to increase in the 21st century, it was not projected to accelerate in the 1990s. Likewise, the recent “Southern Study” (USDA FS 1988) assumed that the wastepaper consumption rate would increase gradually in the decades ahead (to a level of only 0.24 tons3 of wastepaper consumed per ton of paper and board by the year 2030, which was even lower than the RPA Base projections shown here). Today, with a substantial increase in recycling capacity taking place, the rate of recycling is now regarded generally as likely to accelerate much more rapidly, especially in the 1990s. Two longstanding measures of paper recovery and recycling are the recyclable paper recovery rate and the utilization rate as defined by the American Paper institute (API 1989). The recovery rate measures how much paper and paperboard is recovered for reuse (domestic or export) as a ratio to new supply of paper and paperboard. In 1988, the recovery rate was 30.7 percent; in 1989,32.6 percent (API 1990b). A nationwide industry goal, announced last year by the American Paper Institute, is to achieve a 40-percent recovery rate by 1995 (API 1990a). This goal will likely be achieved, but it does not specify how much recovered paper will be exported and how much will be used domestically. Wastepaper exports have been growing rapidly in recent years. Currently, about 80 percent of recovered paper is used for recycling domestically, and about 20 percent is 2 Overall, wastepaper consumption increased steadily in the period since World War II, as paper and paperboard production more than tripled. However, the consumption rate per unit of product output followed the historical trend shown in Figure 1. 3 1 short ton (= 2,000 lb) = 0.91 t. 116 Figure 1 –Wastepaper consumed per ton of paper and board produced in the United States. (Source: Bureau of the Census) (1 short ton = 0.91 t) exported. An examination of the domestic utilization rate is necessary to fully understand the domestic situation. The utilization rate is the ratio of the amount of recyclable paper actually used in U.S. paper and paperboard mills to domestic paper and board production. In 1988, the utilization rate was 25.2 percent; in 1989, 26.4 percent (API 1990b). The likely acceleration in wastepaper recycling in the 1990s can be demonstrated through paper and paperboard production figures and wastepaper utilization rates for individual product grades. Table 1 lists actual 1988 data (API 1989) and projections for the years 1995 and 2000. The 1995 projections, developed by Franklin Associates (1990), were published by the American Paper Institute. The projections for the year 2000 were developed using a scenario of our pulp and paper economic model called the Recycling Future 1990 Analysis, or RF-90 scenario (Ince 1990). The RF-90 scenario simulates long-term consequences of technological developments that are implicit in the industry recovery goal and the Franklin view of accelerated recycling in the 1990s. In the RF-90 scenario, paper and board production is projected to increase to 96 million tons by 2000, when the average utilization rate in U.S. mills (excluding construction paper and board products) will be around 31 percent. Although our model-based projections may be slightly more conservative than the Franklin projections, we generally agree that the largest increases in wastepaper utilization rates will occur in newsprint and unbleached kraft board (mainly linerboard). Significantly, those product grades are produced mainly from softwood fiber and mainly in the South. RF-90 SCENARIO Figure 2 compares the RF-90 projections of wastepaper utilization rates with the RPA Base projections developed a few years ago. In the RF-90 scenario we now project that the wastepaper utilization rate will reach 40 percent by the year 2020, and 45 percent by the year 2040. The RF-90 scenario projects much higher utilization rates than those in the RPA Base case.