Due South: Waste Management's Raul Garcia discusses Mexico's role as a consumer of scrap paper - Interview

Recycling Today, Oct, 2001

The Chinese market has been a much talked about end market for recovered fiber. Perhaps lost in the shuffle has been the Mexican market. This Latin American market has generated a steady supply of business for vendors, especially in the Southwest.

As in other regions, there are concerns as well as opportunities for people looking to ship to the nation sharing America's southern border.

In an exclusive one-on-one interview with Raycling Today senior editor Dan Sandoval, Raul Garcia, an export sales executive for Waste Management Inc., Houston, with a focus on developing the Mexican market, talks about the future of Mexico as a consumer of scrap paper grades.

Q. What impact has NAFTA had on scrap paper markets or trading patterns?

A. I would say NAFTA has played an important role with the Mexican economy in general. Since 1994--and even before with the opening of the Mexican economy in 1992--there has been increasing trade between both countries.

Before NAFTA, most of the shipments of scrap paper to Mexico were by railroad cars. Now there is a lot of paper being moved by tracks, especially to the Northern mills around Monterrey.

I would say southern states like Texas have really benefited from this development. Another thing that I always try to emphasize is the maquiladora phenomenon. It is an example of the NAFTA boom. These maquiladoras have been growing at a 10 percent pace annually.

Last year we had 3,600 maquiladora operations that are the assembly line facilities around Mexico. Because of that there have been a lot of recycling operations developed on both sides of the border.

Q. Can you explain the maquiladora?

A. The maquiladora is the concept and the name fbr the assembly line facilities that were born back in 1960s. Many more were developed in the last ten years, last five years. They are along the border. Two years ago Mexico allowed them to be inside the country. Most of them are around the border of the United States. They get parts from the United States, put it together and then ship it back to the United States. They are creating a market for recycling. There are a lot of people there doing a lot of efforts in terms of recycling.

Q. Do you see Mexico growing in importance as a consumer of recovered fiber over the next three years?

A. I see Mexico continuing to grow in the consumption of recovered paper. If you look at the demographics of Mexico, you see that 34 percent of the population is under 15 years old. This by itself tells you the potential for growth is tremendous. If we look at the paper consumption, Mexico's per capita consumption of paper it is about 110 pounds; the United States is around 770 pounds. So I think it also tells you there is great potential for growth.

This growth, however, will come from the ability of the country to increase the standard of living for the population. There is a new hope that with the opening of democracy in Mexico, and the new government, the benefits of economic growth will reach the bottom [tier] of the population. Maybe it won't happen in the next year or next two years, but it will come. I am really confident it will happen.

Q. What grades show the greatest promise in Mexico?

A. Mexico is importing about 1.5 million tons of recovered paper annually from the United States. For example, OCC (old corrugated containers) and ONP (old newspapers) account for 65 percent of the total imports, or about 970,00 tons. These grades, however, have been static. Not that they don't grow, but on a percentage basis they have been static over the past five years.

The real growth has beenwith the deinking grades. As you know, one of the most dynamic sectors in Mexico is the tissue business. That is where the real growth is. If you look at the packaging industry, today in Mexico there is an overcapacity in that sector. Therefore, by looking at that, by looking at printing and writing papers this suggests to me the demand for paper will be on grades like coated book stock, sorted office waste, perhaps ONP, and not really a stronger demand for OCC.

Also, as some of the older wash systems are updated to add flotation (a more sophisticated type of process whereby paper is de-inked), paper grades like coated groundwood, such as flyleaf shavings, will become really important going into Mexico as a product for de-inking.

Q. How do you address concerns about payment from Mexican mills?

A. It has been blown out of proportion. There are some problems. There are always new things going on in Mexico. In order to do business there we need to be informed of what is going on. The better you know your customers the better off you are.

Mexico is a country until recently where the interest rates were too high to operate on commercial credit. Many transactions are in cash. Buying fiber in the United States and paying in 60 or 90 days was a way to finance the import of raw material. It is important to say, however, that most of the shipments to Mexico were by railroad. It may take 25-30 days to get the paper into Mexico. If you want 30 days after that it is really 60 days bare minimum you are giving to those people.