Smurfit-Stone: The Paper Trail to China
You know that corrugated box that contained your latest online purchase? The one you broke down, put out on the curb for recycling that's now patiently waiting to be picked up by the trash collectors? You look at it and see your green sensibilities at work, your growing environmental conscientiousness. Pat Moore, CEO of Smurfit-Stone Container Corp. (SSCC), looks at that flat box and sees something different: the growing market for recycled waste paper, the challenge of handling noncorporate waste streams, and a payoff for the company's $25 million investment in advanced technology for trash sorting.
Moore recently spoke with BusinessWeek.com Management Editor Patricia O'Connell about what his company is doing to meet the increased demand and its impact on the company. Edited excerpts of their conversation follow.
How much paper was recycled in the U.S. last year, and how much did Smurfit-Stone handle?
Paper recycling is at an all-time high in the U.S. Last year, the industry achieved about a 56% recovery rate on paper—some 53 million tons, according to the American Forest & Paper Assn., the industry's trade association. We had hoped to reach that mark by 2012; its accelerated rate of success has allowed the industry to set a new target: a 60% recovery rate by 2012.
Smurfit-Stone itself handled about 7 million of the 53 million tons that were recycled in the year 2007.
Your primary business is the making of boxes. What percentage of your total revenue is from recycling?
It's about 10%, and we're looking at opportunities to grow that business about 10% a year. Recycling has always been a core business for us. We have historically been in the recycling business as a means of providing fiber to our mill system. And I think as the recycling business has changed [in response to improved sorting technology and increased demand for product] we've really grown with that. And we view it very much as a stand-alone business today.
Recycling still is responsible for providing fiber into our mill system. About a third of what we recover annually, we use internally. And the rest would be sold externally.
Where is the increased demand coming from?
I would say in the last seven years we've seen pretty significant growth coming out of China. Look at their GDP growth, and their growth in packaging demand has been at about the same levels or higher.
Smurfit-Stone will sell about 700,000 to 750,000 tons of paper to China. I think you will see continued growth in China. We're certainly seeing growth in other Asian countries. Vietnam in particular has some recent growth from a containerboard standpoint.
Why can't China meets its own supply demands?
China produces principally a recycled containerboard, the raw material for corrugated boxes. China can't make virgin containerboard on its own because it doesn't have sufficient forests to provide all of the wood products that it needs, so it relies on imports, including timber, wood pulp, and recycled paper fiber. Also, North American containerboard, made mostly from wood pulp, is prized because its long cellulose fibers handle printing better.
How have you responded to this increased demand?
We've had to get into different waste streams than we've been in before, such as noncorporate waste streams, which are more challenging. The proportion of paper to other waste is lower than is found in the trash from large companies, and paper is the most valuable recyclable material.
Separating other usable material—glass, metal, plastic, etc.—requires innovative technology to do it profitably. We've invested significantly in enhanced sort-system technology. What that allows you to do is take single-stream waste, in other words what's collected at curbside, and have it sorted at the plant. The sort-system technology allows us to go extract out the more valuable recyclables.
What kind of investment has this represented for the company?
We've invested about $25 million in the last couple of years in this enhanced sort-system technology that we talked about. We continue to see opportunities in a number of urban environments [for additional investment and strategic partnerships with waste collectors].
I order some books online, and they show up in a corrugated box. I throw the box out. Take me through that box's journey.
So that corrugated box would be collected curbside under a recycling program, or it could be picked up with other refuse and recovered at a downstream waste-recycling operation. The box would be baled, sent to the dock, and shipped to China in a container that brought over goods from China on the first leg of its journey.
The bales would be distributed through China into the mill system there, where it would be repulped and made into new containerboard. Repulping is the beginning of the manufacturing process that produces containerboard, which is the material that goes into the manufacture of corrugated containers or boxes. The mills would make new corrugated boxes, which would then likely go in a shipping container to the U.S. with some product that was made in China.
How important will recycling and export be to your business going forward?
We think [the improved sorting technology] has the capability to help the industry achieve the 60% target recovery by 2012. The statistics would suggest that every 1% growth in the recovery rate represents about a million tons of recycled fiber. So if we look at it from that standpoint, there's certainly the ability to divert a lot of tonnage out of landfills and back into the recycling business.
From a sustainability standpoint, there's a tremendous benefit to diverting recycled fiber from landfill back into the system. When you just look at methane gas and things like greenhouse-gas emissions coming out of landfills, that's a very significant issue globally and certainly in North America. We try to look for any opportunity to divert product out of landfill back into a more productive form.
Also, from a business perspective, it's a critically important part of our growth strategy. So it's important on two levels: the environmental and the strategic. We see this as a very exciting business for us going forward.