For years, South Bay Document Destruction Inc., a Gardena company that exports waste paper and cardboard, saw its business boom as demand overseas soared.
But suddenly, its business is in the trash can. Towering stacks of paper are building up on its one-acre lot, so it stopped accepting recycled paper from the public and for the first time it is charging a fee to pick up old cardboard boxes from groceries and the like.
Recycled paper is the biggest export by volume from the ports of Los Angeles and Long Beach. It is bought mainly by Chinese paper mills that recycle it into packaging that’s used to box up goods which China exports to the United States and elsewhere.
Until recently, China’s bullish economy coupled with the weakened dollar pushed paper prices to just shy of $200 a ton. But a sudden drop in demand from Chinese mills sent the price of waste paper and cardboard plummeting. A month ago, exporters could get $142 a ton for waste cardboard. Last week, they said they’re lucky to receive $40 a ton if anything at all.
“This just nosedived to never-before-seen numbers,” said Gina Vander Meer, sales manager at South Bay, which recently let go of seven of its yard staff. “It’s crazy.”
For now, the waste paper companies said they’re still picking up recycled paper from office buildings, groceries, retailers and other customers. But with no place to ship it, they have paper stacking up to the margins.
The price drop has had a trickle-down effect on curbside recyclers, who collect discarded paper from neighborhoods and sell it to businesses like Allan Co., one of the top paper exporters in the county. Stephen Young, the company’s president, said Allan usually gets 40 to 50 tons of paper a day from collectors and the general public; now it’s receiving about 10 to 20 tons. The rest, Young said, is ending up in landfills.
Los Angeles County has been a nationwide hub of paper exporters. In 2007, local companies shipped 164,000 containers each roughly the size of a small recreational vehicle full of paper out of the Port of Los Angeles, said Marcel Van Djik, the port’s marketing manager. The second-highest commodity export was cotton, at 75,000 containers.
Ships that deposited imports from Asian countries at the ports of Los Angeles and Long Beach would return with containers crammed full of recycled paper exported by companies such as City of Industry based-America Chung Nam Inc., the largest exporter in the United States, and Baldwin Park’s Allan Co.
But cooling demand in China prompted by the worldwide economic slowdown slammed the brakes on the paper commodity market. Industry executives said the speed of the current downturn in prices makes it unlike dips they’ve seen in the past.
“This isn’t cyclical. This is a damn depression,” said Young of Allan Co., which exports about 1.5 million tons of paper a year. “When prices fall $100 a ton, it’s really, really rough.”
Paper tiger
While paper exporters ship to other Asian countries such as Korea, Taiwan and Thailand, China in particular became a kind of paper tiger, devouring American waste paper that local companies have been happy to supply.
And with the worldwide economy booming until only recently, big mills such as Nine Dragons Paper Industries Co. with plants in two Chinese cities have been churning out millions of tons of packaging each year.
Mark Arzoumanian, editor of Official Board Markets, a paper trade publication in Chicago, said Nine Dragons and a competitor recently spent millions to expand production capacity. “Over the past decade, they’ve been buying huge amounts of cardboard, and really it’s put China in the driver’s seat of the market,” he said.
Then a confluence of factors led to a sudden twist. Earlier this year, Chinese mills began to stock up on waste paper in anticipation of a spike in domestic economic growth after the Olympic Games. Not only did that boom not materialize, but the global economy froze and Chinese mills found themselves over-stocked. At the same time, the credit crisis made Chinese mills anxious about their cash on hand, leading them to slash purchases.
“The analogy of the perfect storm is overused, but it’s the same idea,” said Susan Choi, marketing manager at America Chung Nam, which annually exports over 211,000 containers of paper, 95 percent of which goes to China.
Normally, paper exporters could turn to domestic paper mills to alleviate the crisis. But paper mills in Southern California have closed in past years as more paper was shipped overseas, and the mills that have survived have so much inventory that they’re turning away deliveries.
“Warehouses are overflowing with paper,” Arzoumanian said. “I even had one mill call to say that they’re in danger of violating their fire code.”
A month ago, domestic mills in Los Angeles were paying $115 for a ton of waste cardboard; now, it’s at about $45 a ton, according to Official Board Markets.
The freefall in prices has shocked even industry veterans. “This is the fastest I’ve ever seen prices fall, and I’ve been in business since 1972,” said Art Yacobozzi, owner of Alpha Recycling in North Hollywood.
Declining exports
The decline in waste paper exports matches the slowdown in U.S. exports in general, a situation exacerbated by the dollar’s appreciation in value.
A recent report by the Los Angeles County Economic Development Corporation found that outbound container traffic at the ports in Long Beach and Los Angeles rose only 0.9 percent in September compared to double-digit growth in exports at the ports over the past 16 months. The report called the recent figure, the smallest increase since January 2005, “a worrisome signal.”
It’s added up to a painful month for paper exporters. Vander Meer, the sales manager at South Bay, said the company usually ships about 2,500 tons of waste paper a month, accounting for 90 percent of the company’s recycling business. This month, she’s projecting it will ship about half that.
Meanwhile, both America Chung Nam and Allan Co. are projecting they will lose money this month. Currently, Allan is renting 450,000 square feet of warehouse space to store the extra paper it can’t find buyers for. That’s more than double the capacity it usually rents.
Young, of Allan, said he expects the market decline to last through the rest of the year and into 2009.
“This will be the year of complete non-performance,” Young said. “This won’t be a very Merry Christmas for us.”
