The market for recycled plastics was shocked when China notified the World Trade Organization (WTO) of its intention to ban the import of scrap plastics by the end of the year. Our view is that the Chinese Government means what it says and that all scrap plastics will be banned.
You only need to read the notification document submitted to the WTO to recognise this because it specifically lists the commodity codes related to all scrap plastics. Intelligence from our head office in Hong Kong reiterates that this is the case.
Chinese industry is taking a lead and opting for an even earlier cut-off than is strictly required in order to avoid all risk. Vanden took the decision to halt all plastic scrap exports to China at the end of August. We are not alone in that approach.
The implications for the UK market will be severe. China is the premier destination for post-consumer and post-industrial plastics, and some companies have focused entirely on this market.
“Until the full ban comes in, only the highest quality material will be allowed into China. At the moment, this means PP, PET and HDPE and only the very best LDPE 98/2 film.”
Vanden has a new recycling facility at Whittlesey near Peterborough, as well as access to other Asian, European and UK markets, and will be able to find a home for the material we collect, trade and process. Other companies may have to invest in reprocessing capacity in order to provide a finished product to send to China – or find alternative markets.
However, the reality is that China has been warning of this for a while. The Green Fence policy in 2013 should have been a warning sign, while this year’s National Sword policy saw the introduction of an inspection regime that made it very difficult to get material into China.
There has been a gradual tightening of the screw with National Sword that has taken multiple forms. For example, customs officials have gradually but effectively banned certain plastic grades from entering the country for quality purposes. Essentially, low-quality grades have been prevented from entering China from close to the start of National Sword, but gradually this ban has gone higher up the quality range. It seems to me that, until the full ban comes in, only the highest quality material will be allowed into China. At the moment, this means PP, PET and HDPE and only the very best LDPE 98/2 film.
The other action taken by the authorities has been to remove the licences from Chinese importers, or at least drastically reduce their quotas. This has led to less buying capacity in the market from those that have been shut down, while making those that can trade more nervous in case the same happens to them.
The impact of this has been to reduce drastically the amount of exports to China from the UK, Europe, US and elsewhere. This lessening of trade is now going to zero trade. After a couple of decades of exporting plastic scrap to China, the UK now has only weeks left. This is a huge change in our industry, but one laden with opportunity.
My previous article in the May issue noted that the cost of containers to China and other Asian ports had risen dramatically, with some being quoted up to $3,000 (£2,270) per container. Since then, shipping costs have fallen dramatically and at the time of writing, around the $1,200 mark could get material on the water.
Although the high prices earlier in the year were due to a lack of avail-ability of both containers and vessels, the price fall was a reflection of improved capacity and the fact that it was harder to get material into China and therefore few containers were required by exporters.
With the exchange rate also strengthening during the period from around $1.20 to $1.25 earlier in the year, to $1.30 at the time of writing, it was also becoming a little more expensive to send material abroad.
This had the effect of making the price of plastic packaging/export recovery notes (PRN/PERNs) more expensive. This reached close to £70 per tonne at one point, although strange first-quarter data from the National Packaging Waste Database also contributed. Indeed, many questioned the data and its accuracy.
The Q2 data initially looked more promising in terms of meeting the plastic recycling target this year, and there was a corresponding small fall in PRN pricing. But, as these numbers are looked at more closely and the reality of the news from China filters through to the market, we have seen prices flatten and then rise a little. A volatile PRN market looks likely for the time being.
Unusually, prices for physical material during the last quarter or so have been relatively stable, although some grades have seen adjustments. This has been partly a result of relatively stable oil and virgin polymer prices.
It is very difficult to predict how the plastics market will react to all the different factors that will push and pull the price. What we do know, though, is that the market is likely to remain challenging for a little while yet.
David Wilson is managing director at Vanden Recycling