Recycling prices and market commentary: 20 July 2018

July 20, 2018

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The news for the recycling market this week has been dominated by the draft law published by the Chinese Government showing that it intends to ban imports of solid waste.

While recycled plastics are already banned for export to China, along with mixed papers, this is likely to mean around 3 million tonnes of other paper grades are going to struggle to find a home.

There will also be 400,000 tonnes of scrap metal that currently goes to China that will no longer be recycled there.

Prior to this week, people were crossing their fingers that China wouldn’t go through with a ban even though it had previously outlined its intentions, but the atmosphere this week is an acceptance that it will happen.

The only question now is when. Will it be before the end of 2019 or will it be before the end of 2020? Clearly, the market is hoping it will be the latter. But it should also be clear that before the end doesn’t mean at the end. China promised to restrict the number of ports that recycled material could be shipped to before the end of 2018, and this was introduced just this month.

Any implications of this ban are yet to be felt in the market, but new destinations are going to have to be found. The fact Nine Dragons bought mills in the US, Lee & Man is looking at opening a mill in Myanmar and Cycle Link has bought Dutch firm WPT suggests that the Chinese companies are now looking to invest globally rather than focus just on China.

The problem might be for the paper sector in particular, that new mills take time to build and any investment in new mills now, is unlikely to lead to operational capacity before the China ban takes place.

Are we likely to see China struggling to get finished boxes in the coming years? Probably.

This week also saw Vietnam announce a new 100% inspection regime. While it will inevitably be tougher to send material there, it does appear that the country is willing to take recycled paper and plastics on the basis that its growing manufacturing sector requires these raw materials. But it won’t ever have the volume to replace China, and it is likely to only want to take the best quality material now.

However, Vietnam hasn’t shut off imports like Thailand has.

These are going to be trying times for the recycling sector, but in the short-term, it wouldn’t be a surprise if we see aggressive purchasing to stockpile material before the Chinese ban and tougher inspection regimes elsewhere comes in. Of course, quality will be key.

Just to add to the complexity, China has responded to the US implementation of tariffs by devaluing the yuan with the possibility of a currency war now on the horizon too. The idea of the lowering of the yuan is to make Chinese exports cheaper, counteracting the effect of the new tariffs.

But US President Donald Trump is also reported to want to lower the value of the dollar to make US exports cheaper too. This could get messy, and could lead to a stronger pound, which would hurt exporters.

At the moment though, the pound is weakening, which has helped to make UK material cheaper on the market. At the time of writing, it was trading at $1.30, compared to $1.31 a week ago. Just three months ago, the pound was above $1.40, so UK exporters trading in dollars have seen a price advantage in recent months.

The pound has also slumped against the euro this week, from €1.13 a week ago to below €1.12 at the time of writing, as Brexit fears hit home this week.

Recycled plastic

Prices were unchanged again this week in the plastic recycling market.

However, it remains the case that most parts of Asia are closed to exports at the moment, and nobody is taking the risk to put material on the water.

Shipping lines don’t want to send plastics to Asian destinations for fear that the containers will be rejected on arrival, or new regulations will be introduced on the water.

While finding reliable outlets in Asian countries is increasingly hard anyway. Even when they are found, they tend to come in and out of the market at will.

There is a growing view that the Asian recycling market for plastics is dying. Is that the case? It does increasingly feel that way.

Recycled paper

Prices remained unchanged this week, but as mentioned above, the paper recycling market has been gripped by panic over the China situation.

There remains uncertainty too whether CCIC’s inspection regime is sufficient to meet Chinese regulations, but at the moment, very good quality material is still in demand from two of the main buyers and is being shipped.

It is still too early to see whether Chinese buyers will look to stockpile material ahead of the ban, but the difficultly will be in getting enough material of sufficient quality for this to happen.

In terms of OCC prices, there continues to be a premium paid for Chinese specification OCC and some sellers have been able to negotiate an additional couple of quid on top of this during the week as a result. This is only a small part of the market, and didn’t affect the overall price however.

Indeed, at the bottom of the market, to India in particular, the expectation is the market will come off further and below £80 might be offered.

August is traditionally a quieter month for paper recycling, with Europe effectively closed as everyone is on holiday, while Chinese exports are normally lower before picking up throughout Autumn.

Nobody is sure what will happen this year as they still digest all the developments, but the expectation is that August will again be quiet as the market gets to grips with what is going on.

Demand for mixed paper has been good from Europe in recent weeks, but even this is expected to ease in August.

Recycled metal

Copper grades fell back again on the back of tariff fears between US and China. Aluminium though gained £50 per tonne.

Otherwise, metal markets were stable.