Chinese Gold Made with American Waste Paper

Chinese dominance of American waste paper recycling negatively impacts American paper mills.

Waste Paper

Paper mills in China churn waste paper into containerboard, which packages Chinese-made products—iPhones, to pick a prominent example—whose destination is the United States.

Photo By Su Blackwell

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In 1990, a year when the American appetite for industrial resources was fixed in the direction of the Persian Gulf, a woman named Cheung Yan moved from Hong Kong to Los Angeles. Cheung was born in 1957 in northern China. She came to Hong Kong by way of the southern Chinese city of Shenzhen, the country’s first “special economic zone”—an early laboratory in the Chinese capitalist experiment. Cheung worked there as an accountant; after she’d saved some money, she formed a business in Hong Kong, with two partners, to ship waste paper within China. She was encouraged by an older acquaintance who worked at a paper mill in the north. “Waste paper,” he told her, “is a forest.” Cheung would relate that story in profiles in both the New York Times and the New Yorker, published in 2007 and 2009, respectively—not long after that the success of her friend’s advice had turned Cheung into the world’s richest woman.  

China had stripped its actual forests when it industrialized, quickly and violently, during the Great Leap Forward, so the country wasn’t a productive source of the raw materials needed for papermaking. Because of the historical scarcity of wood pulp, paper produced domestically was high in vegetable content—straw, reed, and bagasse, a sugarcane or sorghum by-product—that’s not easily recycled; and anyway, the practice wasn’t widespread in China.

Cheung sought a bigger pond; so, for that matter, did the country at large. As its economy developed, China’s demand for all manner of scrap, paper included, grew. Chinese factories have grown exponentially hungrier for garbage that they can repurpose and put, in some new form, back on the market. Paper mills in China churn waste paper into containerboard, which packages Chinese-made products—iPhones, to pick a prominent example—whose destination is the United States.

The United States was Cheung’s bigger pond: the source of the scrap and the promise of new life for it. Cheung’s move to Los Angeles coincided with the beginning of an economic era pregnant with alchemical symbolism. The U.S. sheds the garbage that China turns to gold for resale, traveling more than 10,000 miles on a round-trip journey back to our retail shelves.

 

Cheung persuaded a Taiwanese former dentist to take the trip overseas with her; she married him when they got here. In California the two formed the company America Chung Nam (America South China), driving up and down the coast of California in search of vendors willing to sell them waste paper, which they’d ship back across the Pacific. America Chung Nam grew so vigorously that by 2001 it was the largest exporter of freight, by volume, in the United States. By then Cheung had moved back to China and founded Nine Dragons Paper, which by the 2000s would grow into China’s largest papermaking company. With both a U.S. paper exporter and a Chinese paper importer in her stable, Cheung would be celebrated in the Chinese media in 2006 as the richest person in the country. By 2007 the Times reported that she was “richer than virtually any other woman anywhere in the world,” including, the paper pointed out, Oprah, on whose show Cheung once appeared. Cheung is known in China as the “Queen of Trash.” And her Kingdom of Trash had become the world’s most prominent recycler of waste paper—if not overnight then something close to it. Scrap fills the hulls of China-bound ships that, after making their deposits in the U.S., would otherwise return empty. “These containers have to get back to China,” says Jon Johnson, the manager of Manistique Papers, a mill in Upper Michigan. “They fill ‘em up with scrap metal, scrap paper, hay—anything they can get their hands on.” Rates are so low that it costs less to ship a container of waste paper from Seattle to China than it does to ship it from Seattle to Portland.

That’s one weird effect of the new transnational waste paper trade: the constant demand for paper in China has reduced the availability of waste paper domestically, driving up prices for mills that process recycled paper. The way that paper is consumed has upended, too. In the United States, the print media simply print less—consumption of newsprint and office paper has dropped over the past decade. In China it’s risen. Two mills in the Midwest that used to subsist on newsprint no longer do. It’s a nebulous market, and some mills are closing. Blue Heron Paper, in Oregon, shuttered in 2011, though not before trying to face bankruptcy by cutting its newsprint line in favor of “a new product line of environmentally friendly commercial toweling grades.” Last September, Catalyst Paper closed its recycling mill in Snowflake, Arizona. Manistique Papers, the mill Johnson oversees, almost went out of business, too.

 

Though Manistique would come to be implicated in the “waste paper forest” that Cheung went in search of—that is, in the globalized scrap-paper trade—its previous arboreal associations were less metaphorical. In the late 1880s the local timber industry was concentrated 40 miles from Manistique in Seney, a logging town situated along a railroad line and a tortuous river. Logs floated downriver from Seney to the port at Manistique, where they were shipped throughout the Great Lakes. The area was the site of departure for the schooner, the Rouse Simmons—the “Christmas tree ship” of lore—which disappeared into stormy Lake Michigan in 1912, en route to Chicago, laden with a few thousand evergreens that its operators planned to sell off the docks at Clark Street. According to one history, witnesses to the Rouse Simmons’s departure said that it sailed off looking “like a floating forest.”

Lumber declined—virgin wood ran out by the end of the century—and other economies emerged. One developing industry bore a more remote connection to the forest, opening a chasm between the raw material and the new finished product—paper—that would continue to widen, 100 years later, with the international economy.

Manistique is close to water and timber resources, and accessible by rail from Minneapolis—notable characteristics when, in the early 1900s, the publisher of the Minneapolis Tribune, W.J. Murphy, was looking for a newsprint supplier and decided to build one there. Construction finished on Manistique Pulp and Paper Company in 1920, and the mill continued to produce newsprint for most of the 20th century, switching briefly in the 1940s to supply corrugated cardboard for the World War II effort. In 1959 it was sold to Field Enterprises, and in 1981 Marshall Field V took full ownership of the plant, which he renamed Manistique Papers Inc.

Since the two Fields eras the mill changed hands again, and was most recently under control of the Wheeling, Illinois-based Remark Paper Company, which purchased the plant in 2006. Last August—following a decade that was rough, to put it mildly, on print media and the paper industry—Manistique Papers ceased production and filed for bankruptcy.

I grew up in Manistique. This bankruptcy, which came sudden and unexpected even to mill officials, occasioned a brief flurry of emails among relatives who knew how important the company was to the town’s well-being. The local newspaper, the Pioneer-Tribune, listed the implications of a permanent closure: 150 layoffs “in a county where unemployment rates are already close to 12 percent,” a hit in charitable giving to community projects, school enrollments continuing to decline, and rippling economic effects on auxiliary industries like trucking and equipment vending.

The mill hadn’t been immune to the volatility of the market. Since the beginning of 2011, waste paper prices increased by $1 million a month, while orders declined 30 percent. But Johnson, the mill manager, thought the business was prepared to deal with it: for one thing, the plant is capable of producing more than one kind of paper, and had already started to move away from newsprint. It had never missed a payment to the bank. Still, in August 2011, RBS Citizens Financial Group abruptly decided to call in the company’s loans, which totaled $11 million. It was as much a shock to anyone as it was to Johnson, who had taken over operations at the mill in 2004 and who earlier in the year had overseen a trial run of a new packaging product—a better prospect than newsprint—that the mill hoped to sell.

Johnson has worked at the plant since the early ’80s, when he started as a college student, sweeping floors and working in the wood room. (The mill no longer processes wood; since 1984, it’s all recycled paper.) He says that it was the late ’90s when he started to hear “that sucking sound of raw materials leaving this country and heading to China.”

 

In 1996 Greg Rudder, who edits the trade journal Pulp & Paper Weekly, heard from a contact in the Bay Area. Rudder told me in an email that the source reported that “he had been in China, seen the industry development ... and believed that their mantra was to ‘rule the world’ in pulp and paper production.” Rudder says that his contact, and others he spoke with, believe China’s demand for waste paper “would someday challenge the ability of U.S. mills to easily buy recycled paper.” The founder of a Vancouver-based recycling company said that the number of calls she received from buyers interested in mixed waste paper “increased exponentially” in the late ’90s, several years after Cheung Yan and her husband had started their waste paper-export business.

“Sellers of paper often receive unsolicited calls regarding purchasing recovered paper for Asian mills and, at first, I dismissed the calls casually,” wrote Nicole Stefenelli, the president of Urban Impact Recycling Ltd. in 2010 in Resource Recycling, a trade journal. Mixed-waste paper, which her company processed, was traditionally a low-price good that she “dreaded stocking”—”there was so much on the market and it wasn’t worth a lot.” For Stefenelli, the increased interest “foreshadowed an opportunity.”

For others, a threat. As late as the early 2000s, says Steve Silver, president and CEO of the Alsip-based mill FutureMark Paper—which processes recycled paper—scrap remained cheap: “Basically if you were willing to pay the freight to go pick up the waste paper, it was yours.” The Chinese ascendency in the market drove prices up. By 2002, scrap (the general category, not just paper) was the third-largest U.S. export to China, behind airplanes and semiconductors. That same year the Wall Street Journal reported that Cheung’s paper exporting company, America Chung Nam, sold to China “U.S. scrap equal to the weight of 17 aircraft carriers”—more containers from U.S. ports, noted the paper, than had been shipped by General Electric, Altria Group (nee Philip Morris), and DuPont combined. According to the WSJ, waste paper broker Zozzaro Bros. got $20 to $30 more per ton to export scrap paper than to sell it domestically.

Rudder says that 15 years ago, paper brokers like Zozzaro supplied 80 or 90 percent of what they recovered to mills in the United States. They now send 60 to 70 percent abroad. “I was in a recycling plant recently where I asked the manager if he was selling to a local mill close by,” Rudder told me. “The owner said some tons were being sold to that mill, but not that many. I asked why. The manager said most of the plant’s recovered paper went to the nearby major port for export to China and India because of concern about the financial survival and viability of the nearby U.S. mill.”

The U.S. had about 750 industrial paper-making machines in 2000, Rudder says; today there are about 340. Prior to 2001, Canada was the largest export market for waste paper from the U.S. That market is now, far and away, China. The United States is China’s chief supplier.

 

China has become so dominant a presence in the world waste paper market that FutureMark’s Steve Silver argues that it’s not in the classical sense a market—“a bazaar or trade exchange where thousands or millions of discrete buying and selling decisions help determine what price is based on what demand.” With China buying up so much of the United States’ paper, Silver says, “one giant buyer can buy a lot and drive the price up, or buy none and cause the market to crater.” That’s what happened in 2008, when the waste paper market—along with the market for just about everything else—tanked. As Evan Osnos wrote in the New Yorker in 2009, “Chinese factories had stopped buying paper so abruptly that it was backing up in America like a clogged drain.”

“The waste paper business isn’t really a predictable market anymore,” Silver says. “It’s controlled by one 800-pound gorilla that works for its own advantage and leaves a trail of ruined companies in its path.”

FutureMark hasn’t faced circumstances quite as dire as Manistique’s, but it too has had to adapt to the industry’s shifting straits. FutureMark is owned by Watermill, an investment group that in April added to its stable Manistique Papers, which was rescued following an 11th-hour collaboration between Michigan’s economic development bureau and a local bank that agreed to hold the loans that the mill’s previous bank was demanding repayment on. It wasn’t the first time that the two factories found themselves in the same corporate family: both once were owned by Marshall Field, and both once supplied newsprint for Chicago’s dailies.

After 45 days idle, the mill at Manistique reopened September 20. Later that week it started a run of a new cardboard product—one with perhaps a brighter future than newsprint.

 

When I visited the FutureMark plant, I found that everybody I spoke with knew my uncle, who’s worked for as long as I can remember at the Manistique mill. On a tour of the plant I ran into my childhood next-door neighbor, who lives now in the Chicago area but still works for Manistique Papers. Before it came under possession of Watermill, FutureMark was owned by a Finnish firm, Myllykoski, which in the early 2000s made expensive upgrades to the facility that gave it greater capacity to produce a higher-quality paper than newsprint. Matt Nightingale, who handles procurement for FutureMark and now for Manistique Papers, characterized the market then: “Waste paper was plentiful, and it was cheap. My guess is that Myllykoski looked at it and said, ‘Listen, we can get very inexpensive fiber. And we can upgrade the paper from newsprint to a higher-value grade. We can make a really good turn on investment.’”

Myllykoski spent about $250 million on hardware upgrades that would allow the mill to produce stock for magazines and brochures—atypical applications for recycled paper made possible by better technology for removing ink and other impurities. (As Silver put it, “Man has been making paper since the Egyptians. Making paper from trees has had, like, two, three thousand years of trial and error.” Recycled paper, on the other hand, is relatively new, and he foresees “another five or ten years of really big quality leaps.”)

After waste paper prices rose and supply shrank in the mid-aughts, Myllykoski sold the mill. But the investment turned out to be prescient: newsprint no longer paid the bills. The challenge Silver faced when he took over the company in 2009 was the wildly fluctuating prices in the waste paper market: “If our raw-material price can vary by 50 percent in a year, how do we go to a bank and convince the bank that we’re a good place to lend money?” Silver and Nightingale proposed to their vendors a plan that would set prices according to the average over the past three years. “You sell at the average, we buy at the average,” Silver characterized it. “At the end of the year we’ll have the same money, we’ll just avoid all the drama as the market goes up and down, driven or undriven by China.”

FutureMark sources most of its paper in the neighborhood of the Midwest—much from Chicago—and it’s also begun an initiative to buy paper from its literal neighbors. Once a month, a couple blocks from the mill, the company buys scrap from whoever might drop it off. Since the program started last year FutureMark has paid out over $800,000 for recycled paper. According to Silver the paper buyers have developed regular relationships with some amateur collectors—think of the guys who take metal from your alley. “We created a type of independent businessman around here,” Silver says—a paper gatherer. “They come in with pickup trucks full of it.”

It’s a variation on a trend happening on the East Coast, where, the Atlantic Cities’ John Metcalfe reported in July, an illegal trade in cardboard has opened up. Driving rented vans, well-organized poachers take bales left next to dumpsters that would otherwise go to local recyclers. Three men arrested recently in New Jersey, operating under a front business, are thought to have taken in 900 tons of cardboard in three months—for a profit of $103,000. Those looking for the missing cardboard “might want to phone China,” Metcalfe wrote. “That country, along with other developing nations like India, is driving the market by paying top dollar for used cardboard.”

 

China’s where consumer demand for paper is rising too. In 2009 the amount of paper consumed in China eclipsed, for the first time, the amount consumed in the United States. This comprises all manner of paper products, including newsprint: as more and more Chinese citizens enter the middle class, and as more and more learn to read and write, there is a rising demand in that country for the classic print media products that the Western world is rapidly dispensing with. In the U.S. and Canada, by 2009, newsprint consumption was half what it had been in 2004. The greater interest in print media isn’t the only trapping of a middle-class society, by the way, and the demand for other products has provided, oddly, a certain kind of salve to the U.S. paper industry. The Wall Street Journal reported recently on a mill in Virginia, owned by International Paper, that once produced white office paper. The plant’s closure three years ago sent 1,100 people, in a town of 8,500, into unemployment. International Paper has reopened the plant, with a fraction of its previous staff, to produce what’s called “fluff pulp”—“the soft, white absorbent used in diapers, tampons, and some medical bandages.” The driver of the demand for fluff pulp is the rising economic tides in China, India, and other parts of Asia.

Likewise what used to be the moneymaker for plants like FutureMark and Manistique no longer is. The former has success marketing its glossy, recycled paper as stock for brochures and catalogs for Fortune 500 companies eager to prove their commitment to the environment; the latter, along with its new cardboard products, processes recycled paper into school workbooks and McDonald’s tray liners.

Some of Manistique Papers’ previous customers remain. In an editorial published the week after the mill closed last year, Pioneer-Tribune editor Paul Olsen, after listing the various effects of what looked then like it could be a liquidation, noted a somewhat more personal and sentimental implication. “If we may be permitted a brief moment of self-indulgence,” Olsen wrote, the closure would affect “this small-town newspaper, which was proudly printed on hometown-produced newsprint for longer than anyone can remember, and now is not quite sure what we’re going to do next.” Though its focus is increasingly elsewhere, Manistique Papers continues to sell a bit of newsprint to the Pioneer-Tribune as well as what mill manager Johnson says are a lot of “little mom-and-pop newspapers in northern Wisconsin and Michigan.”

“I look in the paper every day because I’m an old traditional conservative guy,” Johnson says. “I look in the obituary column and see somebody who probably read a newspaper.”

For all my lifetime—including the summer I turned 17, when I worked a job at the Pioneer-Tribune that could generously be described as “junior reporter,” the only full-time writer being Olsen, the paper’s editor—the paper was printed on an unusually broad version of a broadsheet, with pages a luxurious-feeling 15-1/8 inches across. It was so big that as time went on, the act of opening the paper felt anachronistic. A couple weeks after the mill announced its bankruptcy, the Pioneer-Tribune shrunk its page size to a more-standard [13-1/4 inches], crediting the change with the rising costs of newsprint and the instability in sourcing it. “There was a time when almost every newspaper was as wide as the Pioneer-Tribune,” it noted. The mill has since reopened, but the paper is the same size.

Sam Worley is the deputy editor of the Chicago Reader, from which this article was reprinted (September 20, 2012). The Reader is a free alternative weekly that’s been covering news, culture, and entertainment in Chicago since 1971.