Since MRW’s last report at the end of 2016, the market for recyclable plastics has been challenging, to say the least, with a number of factors coming together to make it extremely difficult to trade such materials on the international market.
First of all, the Chinese Government announced its National Sword programme, which has meant an increase in the number of inspections of containers. This means that all containers are either x-rayed or undergo visual inspections.
While the focus on quality is to be welcomed, it has slowed down the market and made Chinese buyers nervous about purchasing material on the global market in case they risk prosecution. It has also made sellers nervous about putting material on the water in case Chinese buyers suddenly panic and decide not to buy the material mid-transit.
Another factor that has had an impact was the huge increase in shipping costs since the end of last year. While prices were rising at the end of 2016, they jumped up disproportionately during the past few months.
Although not typical of the whole market and those who have more purchasing power, some smaller operators have been quoted up to $3,000 (£2,400) per container when, just over a year ago, around $500 was the norm. This has meant that the economics of global trading have become challenging and is putting off buyers, particularly from the biggest market in China.
Effectively, low-grade plastics are simply not worth sending to China because it costs more than the value of the material. When the National Sword restrictions are added to this, many smaller operators are simply thinking “Why bother?” and have withdrawn, albeit temporarily, from the market.
However, higher quality grades are still attracting attention, and Chinese buyers are still taking the best quality LDPE film, PP, PET and HDPE. But in that market, China competes head-on with EU reprocessors. In effect, there is little shortage of demand for high-quality material.
Lower quality materials are really struggling to find a home. And with the refuse-derived fuel market not as interested as it once was, businesses are struggling to find any treatment solution for it.
As a result, prices for plastics packaging recovery notes (PRNs) have risen since January and, at the time of writing, were around £40. This is a reduction from the highs in the second week of April of £45-£46. The fall-back has been caused by preliminary strong reprocessing and export numbers.
Such numbers seem to contradict the widely perceived difficulties in first-quarter exports and emphasise the constant need for processors and exporters to accurately enter data and for the Environment Agency to police that data. If those preliminary numbers are in fact incorrect and targets look set to be missed, it could be that PRN/ PERN prices will continue to rise. To what level is difficult to predict, of course.
“Effectively, low-grade plastics are simply not worth sending to china because it costs more than the value of the material. When the national sword restrictions are added to this, many smaller operators are simply thinking ‘why bother?’”
One factor that continues to help the market is the fall in the pound against the dollar that we have seen since Brexit. At the time of writing, the pound had been at the $1.20-$1.25 level, and has been much lower than the $1.50 seen before to the vote to leave the EU in June last year. This has given some breathing space and enabled buyers on the international markets to at least keep the market partially alive.
While UK plastic has been better value and a rising PRN price has helped, this has been completely outweighed by the vastly higher shipping costs and market tempering effect of National Sword.
So what for the immediate future? It is our expectation that the market will remain challenging during the next quarter and potentially beyond.
Until shipping costs start to come down, deep water destinations will continue to focus on the high-quality material, if they want it. Or at least they will attempt to get it from closer sources such as the domestic market, US and Japan before the more expensive, in terms of shipping, European and UK sources.
Longer term, there will still remain opportunities in UK plastic recycling, which is why Vanden has just started operating a plastic recycling facility in Whittlesey, Peterborough. It is sorting high-quality plastics for use in new products manufactured either at home or abroad, and reflects a confidence that industry should invest in the UK.
While the market looks set to remain challenging in the coming weeks and months, the long-term future of plastics recycling looks good.
David Wilson is managing director at Vanden Recycling