Clearly, the main thing that has affected the plastics recycling market in the past few months has been the Chinese import restrictions. Effectively, the amount of plastics sent to China for recycling began to slow down from September and trickled to virtually nothing by the end of 2017, when the ban came into force.
Across the world, this has had huge implications. China used to take seven million tonnes of plastics for recycling each year, but now allows only post-manufacturing plastics. We estimate this to represent around 10% of the market. Our analysis of the impact of the Chinese ban found that around 350,000 tonnes of UK plastic will struggle to find a home in 2018.
Using HMRC export data, along with statistics from the National Packaging Waste Database, we extrapolated the growth seen in alternative destinations in 2016, 2017 and into 2018 to find out to what extent those destinations would fill the gap. We predict that 472,500 tonnes of plastic recycling capacity will be lost as a result of the Chinese ban.
“China used to take seven million tonnes of plastics for recycling each year, but now allows only post-manufacturing plastics.”
Looking at the data, it seems that alternative destinations such as the UK, Turkey, Taiwan, Indonesia, Vietnam, Malaysia and the EU will add around 121,800 tonnes of extra capacity this year. But this will leave a gap of 350,700 tonnes with nowhere to go.
In the medium to longer term, we expect that some destinations will see opportunity from the China ban and more capacity will emerge. But it could be a year or two, perhaps more, before there is any real progress.
On a day-to-day basis, the impact of all this has had a profound effect on the market. Initially, destinations such as Vietnam, Malaysia and countries in Europe were taking up the slack by importing a lot of UK material.
They were aided by a packaging recovery note/export note (PRN/ PERN) price that was regularly above £50 in the last quarter of the year, and occasionally burst above £80 per tonne for packaging grades. This helped to subsidise a more attractive price for UK sellers. For all plastics, a low exchange rate against both the dollar and euro also made UK material good value.
But the whole world was also trying to sell into these destinations, and often had the benefit of high-quality material that proved to be attractive to buying destinations – especially as it was coming in at increasingly lower prices. The result was that the alternative destinations quickly filled up with material and appear still to be at that point.
Since the start of 2018, we have seen a softening in price of various plastic grades that are still able to find a market. Transactions have tended to happen between companies with existing relationships and levels of trust.
Grades such as PP and HDPE have largely been able to find a home and prices have remained firm. But films in particular have struggled, even for 99/1 and 98/2 grades.
Although it has been possible to find receivers for those grades, it is becoming increasingly difficult unless you are a respected and trusted long-term supplier. Below 90/10, film is increasingly seen as a gate fee material or is having to be stored because there is not much of a domestic or export market for it at present.
Other packaging grades such as bottles had initially found good support from the UK and Europe, but this interest appears to be waning and prices have started to ease.
Interestingly, the 2018 PRN market kicked off with a plastics price above £50, rising to £60 in early February, and that is highly unusual this early in the year. Everyone will be taking extra interest in the data this year, because who knows where the PRN price will be headed if it starts off so high?
After that, we saw it fall a little to the high £50s, with initial tonnage data in January 2018 being comparable to January 2017.
With the recent strengthening of the pound against the dollar, the advantage the UK had in terms of cheaper prices against competitors has weakened. At the beginning of November, sterling was trading at $1.32, but was around $1.40 at the time of writing.
The market has also seen complications with shipping lines. Although prices for containers remain relatively good value, there have been reports of smaller exporters struggling to get hold of boxes.
Shipping lines are worried that other Asian destinations will follow the lead of China and impose tougher restrictions on material, and the lines do not wish to be left with containers full of banned or restricted plastics on the water or at dockside.
Those of us who export greater volumes have not suffered from this issue, but it should be seen as a warning that the focus on quality material must be maintained if we want to keep an export market. While there is sufficient container availability, delays in getting them on to waste sites are being caused by issues with consignee letters of indemnity, although that has eased as February has progressed.
The outlook for the next few months looks tough for the plastics market – but there are always opportunities to be identified in tough markets.
David Wilson is the managing director at Vanden Recycling