US giant Waste Management Inc has reported that just 2% of its OCC now goes to China compared to 30% previously.
At the same time, the price it received for OCC had dropped to a nine-year low, and the value of mixed paper had fallen to $0 or below.
In a conference call as it announced its first quarter results, the company’s chief executive Jim Fish reported that the 0.5% contamination limit imposed by China has made a big difference to the company’s operating costs.
This is because it has been able to find alternative destinations for its OCC, such as India and Vietnam, but this has resulted in higher shipping costs.
He also said that the company had contamination levels of between 10% and 40% and that the majority of this contamination had to be pulled out to enable it to be sold to China.
Average contamination rates had increased from 10 to 15% five years ago, to 20 to 25% now, he added.
As a result of shrinking revenues from recycling and higher operational costs, he said that Waste Management was educating its customers on how to recycle properly. The company is also rejecting and charging back for contamination.
In new contracts, it is looking to shift the commodity price risk onto its customers and more easily recapture its reprocessing costs.
While Chinese demand for OCC is expected to grow by 5% in 2018, the suspension of import licences and the contamination limit had meant more focus on domestic Chinese OCC and import of more pulp, he said.
However, he expected commodity prices to recover over the rest of the year, as Chinese demand will need to be met as the domestic market cannot provide the OCC required by mills. He also expected savings to be achieved on operational cost over the year.
Revenues for the first quarter were up to $3.51 billion from $3.44 billion in the same period in 2017. Net income increased to $396 million from $298 million in Q1 2017.
Jim Fish said: “The traditional solid waste business is in exceptional health, and we achieved outstanding results despite significant challenges presented by external market factors in the recycling line of business. The great start to 2018 shows how well we are executing upon our strategic plan, and we will continue with the focus and discipline required to produce strong results in the face of the challenging recycling environment.”