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China crackdown opens up fault lines

  • China tightens regulations for domestic processors
  • Imposes de facto New Year ban on 24 material grades
  • UK and US associations call for Government help
  • UK exporters seek new markets
  • Fears of business failure, stockpiling, fires and crime

Policy decisions in Beijing between February and August leave secondary material exporters in a situation which UK and US observers have labelled a crisis. In the short term, there are the practical challenges of getting recovered paper and plastics to market and real fears of business failure, stockpiling, fires and waste crime. In the longer term, new ways must be found to deal with more UK-generated waste at home, almost certainly with new technologies and processes.

In the UK, the strongest words to date have come from Simon Ellin, chief executive of the Recycling Association, whose members are mostly involved in recovered paper.

He said he was “extremely concerned by the silence from UK government”, adding he was “stunned” that resource minister Therese Coffey made no reference to China in a wide-ranging speech on 11 October to the Local Authority Recycling Advisory Committee conference in Nottingham. China was mentioned by Coffey in a speech on 17 October (see page 13). 

“The China situation is probably the biggest crisis the UK recycling industry has ever faced and it appears to have completely flown under the radar of central and local government. Potentially, in two months’ time there will be over a million tonnes of distressed mixed paper and all post-consumer plastics on the market. I get the impression that central government, Larac and other local authority agencies still have their heads deeply buried in the incineration bottom ash their inactivity may produce,” Ellin told MRW before Coffey’s second speech.

Ellin fears local and central government will expect industry to sort out the problem, but it will be at a price if the hardest-hit grades suffer rock-bottom values, with reports from the US of mixed papers already at negative prices.

Can you imagine the press coverage if local authority recycling rates drop by 5 or 10% because the plastics have no market to go to?

Adam Read, external affairs director, Suez

“It does not matter whether local authorities collect via commingled or source separated methods, the China situation will severely impact them, and the pain and cost will be borne by the supply chain – particularly by local authorities.”

Ellin warned that in the UK this could develop into a “force majeure situation” whereby extraordinary global circumstances render contractual arrangements irrelevant and, even if contractors found markets for all this distressed paper and plastics, it will be at a big cost.

“Worst case scenario is that we have no market at all and we have a disposal problem and the associated costs to local authority budgets and the costs to central government of drifting even further away from their recycling targets,” he said.

A senior executive in a major waste management company used an expletive when he told MRW this week it was “going to be chaos”.

Suez’s external affairs director, Adam Read, newly arrived from Ricardo, asked in a recent blog: “Can you imagine the press coverage if local authority recycling rates drop by 5 or 10% because the plastics have no market to go to?”. For him, the answer to the Chinese crackdown is obvious, but longer-term: to grow UK reprocessing capacity and protect the economy from the markets. The means to that end is the challenge.

Read believes the Industrial Strategy from the Government offers a way out with growth in remanufactured ‘waste’ feeding the UK economy, “providing chemicals to the petrochemical sector, fuels to the transport and aviation sectors, packaging for UK based produce protection, and heat and power to a much wider community and suite of industrial sectors”.

Others have spoken of smarter design of our plastic products so that poor quality or unrecyclable materials are eliminated from the recovery loop. But all this will take time and there is the fear in the meantime that surplus and unwanted plastics, in particular, will be a blight.

In September, David Palmer-Jones, chief executive of Suez, told a panel at RWM, as quoted in the previous issue of MRW, that the Chinese strategy was “another punch in the face for the recycling industry”. 

We’ll be fine on quality – a lot of other companies will have worries if they send it to China

David Wilson, commercial manager, Vanden Recycling

Biffa chief executive Ian Wakelin, at the same event, was less concerned, saying it will ultimately be a question of price. “Chinese mills will want material. Shipping lines will want containers to go back full. The question is how high will the price go in China so they can keep the mills going, and will that cover the cost we will have to incur here in the UK to increase the quality?”

A senior paper executive told MRW price would indeed prevail – and maybe sooner rather than later: “Domestic mills are full, Continental mills are virtually full up, so we’re relying on other areas in Asia and eastern Europe. Turkey, Latvia, Estonia have paper mills looking for material so it could be that China’s shot itself in the foot: when they come back wanting recovered paper it, it’s not going to be there.” 

Another said: “We average [a contamination rate of] about 0.5% so we’ll have to do a little bit of work to match the 0.3% standard. We’ll be fine on quality – a lot of other companies will have worries if they send it to China. But we will continue to buy, and we’ll send to the China market directly ourselves.”

David Wilson, commercial manager of Vanden Recycling, with a new plastics recycling operation in Peterborough, in the UK, also sees this as an opportunity. “China has voluntarily given up a six million tonne a year industry. We’ll be selective about it and we’ll go for materials we understand and markets we understand, but some of that lost capacity will be rebuilt here.”

Vanden’s efforts are concentrated on low-contamination material feedstock and definitely not the post-consumer plastic waste which China is shutting out and could prove to be a real headache at home.

Dan Cooke, Viridor’s director of regulatory affairs, is worried that lower-grade material will fall down the waste hierarchy “or fall out of the established waste stream and be handled by the less reputable operators”. Concern that unwanted materials will build up and pose severe problems is discussed in Gill Weeks’ opinion column on page 21. The Environment Agency board member says guidance may have to be developed for “safe interim storage options”.

Both Weeks and Cooke also see positive aspects. Weeks suggests domestic producers not having to compete with lower Chinese prices might use that as the basis for better reprocessing and innovation; Cooke believes new markets will be found and research into new technology such as robotics will be accelerated.

How hopeful can we be that policy-makers will think as creatively? On 13 October, the National Infrastructure Assessment of the UK’s future needs considered the key concerns around secondary materials to be residual waste and packaging: there was no mention of the benefits of the ‘new’ uses set out, for example, by Read, although they are expected to feature in forthcoming reports.

Some sympathise with the Chinese for wanting to no longer be on the receiving end of low quality secondary materials. Ton Emans, president of Plastic Recyclers Europe, said: “These low qualities used to be exported as a cheap end-of-life solution for badly collected and sorted waste. Today, this surplus is unable to be totally absorbed in EU as it does not meet the quality requirements of the European recyclers. This abrupt change in the market conditions demonstrates the urgency needed to implement a real and sustainable waste market in Europe. This can only be done by driving the quality upwards by changes in design for recycling, collection and sorting.

We are aware of this situation and are looking into the potential implications

Defra statement

“Lack of vision of the value chain over the past few years has now resulted in the EU being unable to treat these new increased quantities overnight. Nevertheless, industry, policy-makers and society must now urgently bring a common solution to the table to allow immediate implementation of enhanced design for recycling, harmonised collection and investment in highly efficient sorting centres in order to increase the EU’s recycling capacity.”

In terms of political pressure on China, we have seen little publicly from the UK Government, as strongly criticised by Ellin.

A letter in late September to Defra from the Confederation of Paper Industries, Resource Association, Recycling Association and Environmental Services Association called on the department to “take urgent action” to support the recycling industry, including sending a delegation to Beijing. They wrote after a meeting with Defra officials, described by one the attendees as “only a fact-finding mission”. In her 17 October speech, Coffey said she had not even seen the letter. A Government spokesperson said: “We are aware of this situation and are looking into the potential implications.”

In Defra’s defence, this is an EU -matter (at least until March 2019), and representations were made at the EU’s Market Access Advisory Committee (MAAC) in Brussels in September where the matter was raised under ‘any other business’ and was supported by other member states. The next MAAC meeting was due on 20 October, after MRW went to press, where an assessment was expected on whether or not China had contravened any European trade agreements and if the WTO consultation notice in July was legal.

The Bureau of International Recycling (BIR) is keen to separate Operation National Sword and the WTO announcement. For the former, it expects the lack of compliance from those exporting to China to be low and only part of a continuing quality drive. But uncertainty over bans is concerning the free-trade BIR leadership which is pursuing the Chinese authorities for greater clarity.

At a WTO meeting on 3 October, five members (US, European Union, Australia, Canada and South Korea) sought more information on which types of materials would be affected, with the US asking whether China was planning to extend the measure to cover ferrous and non-ferrous scrap. The Chinese representatives said they would forward the concerns to Beijing.

shipping port

2000 shipping port

In the US, the Institute of Scrap Recycling Industries (ISRI) calculates that China’s ban as set out to the WTO would put 18% of the volume of US scrap exports to China at risk, roughly $532m (£400m) annually. If China fully closes its market by 2019, as some forecast, the remainder of the trade would be jeopardised, resulting in the loss of more than $5bn. According to the ISRI, roughly 30% of US-generated recyclables are exported due to insufficient domestic demand.

Joe Pickard, ISRI’s chief economist and director of commodities, fears the crackdown could extend beyond paper and plastic. “[There’s] increasing concern about the expectations for import bans on a number of important grades of copper and aluminium alloy from the US, including on electrical appliance scrap, on insulated wires and cables, electric motors,” he told a recent -conference.

The private sector should work more closely with recyclers to develop clean technologies and methods that will keep recycling closer to home

Adam Minter

American trade websites increasingly reflect the harsh impact of the Chinese ban on US businesses. Recycling Today, for example, says the most recent casualty was QRS of Maryland, which has mothballed its plastic processing plant in Dundalk, Maryland. In Florence, Oregan, residents can no longer put any plastic items or cartons in their kerbside bins because the service provider, a Waste Connections subsidiary, said the contamination risk and low market value no longer made collection viable.

Chaz Miller, director of policy for the National Waste & Recycling Association in Washington, has told his members to expect “a bumpy ride” for mixed paper as the situation becomes clearer. “What can the recycling industry do to fix this problem? Processors who do a sloppy job need to clean up their act. Collectors and local governments need to step up on kerbside enforcement. If you don’t collect crap, you won’t have to process it out,” he says.

The Solid Waste Association of North America has written to every state’s environmental agencies, warning them to “be prepared for increased market volatility, which is likely to drive greater uncertainty among your stakeholders”. In a call that could be echoed in the UK, the letter suggests agencies “review current and contemplated recycling goals and regulations in light of current market conditions”.

One of the most respected writers on the global waste/scrap market is Adam Minter, author of Junkyard Planet, who says the current position is a “true recycling crisis” but it does not have to remain that way.

Writing for Bloomberg, he says: “China’s decision … effectively deprives its companies of a cheap source of raw materials. That’s incentive for other countries, companies and programs to invest in new, cleaner technology to take China’s place and gain access to those materials for themselves. Arch-rival Japan, long a major global recycling exporter, may be the first to seize the opportunity.”

That may be so, but Minter underlines the need for domestic effort. “The private sector should work more closely with recyclers to develop clean technologies and methods that will keep recycling closer to home.”

In late September, I had a call from a BBC journalist who had come across the MRW website. He asked: “I see you have been reporting on China’s Operation National Sword – can we chat?” I recapped the main points from our news articles over the previous six months or so relating how Chinese policies were hitting exports of recycled plastics and recovered paper and the expected ban on certain grades in the new year. At the end, he said: “This seems to me to be a pretty big story but no-one’s reporting it.”

What he really meant was that no-one in the mainstream media was reporting it. He was right. The journalist’s research and other conversations made the airwaves on the World Service on 17 October. I suspect it will be a subject he revisits and one which will eventually feature in other outlets.

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