COVER STORY

PLASTICS RECYCLING: TRADE POLICY AND CHANGING MARKET DYNAMICS

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For many years China has been the top international destination for recyclable materials, be it paper, plastic, metal or electronic scrap and so on. So the Chinese notification regarding restrictions on scrap imports last year, and the ensuing ban introduced on certain scrap materials starting this year has led to many countries scrambling to find new markets for these recyclables. And it is only natural that China is now at the centre of all conversation in the industry as the nation’s regulatory policies have caused disruption in the global supply of recycling material, the most affected being plastics.

But one would also realise that it is an opportunity for the sector. The pressure that China is putting on the industry by demanding better quality will only help raise the bar with regard to the supply of recyclables globally, thus benefitting the industry in the long run. Leading industry experts examine the issue from two different angles, sharing their views regarding the latest developments and the changing market dynamics with specific reference to plastics recycling, in an interview with Swaliha Shanavas.

Surendra Borad, Chairman, Gemini Corporation NV, Belgium and Chairman, Plastics Committee BIR

Surendra-BoradChina’s new regulatory measures to curb import of scrap material seem to have prompted something of an international crisis, particularly for plastics. What is the impact of this move on the recycling sector at the global level?

Three years back I had spoken at certain forums about our insane dependence on China for export of plastics scrap. How can anyone be dependent on one region for 80% of his business? All roads have been leading to Far East as far as international trade in plastics scrap is concerned; be it from USA or from Europe or from Japan. We in the plastics industry get cold if China sneezes, we get fever if China catches cold and it turns into pneumonia when China gets fever.

Not only the normal plastic scrap but also the production waste has been banned for import into China from the end of 2018. This ban on production waste is really a shocking development. Earlier, our industry had the impression that China’s actions were designed to stop the dumping of low-quality materials, but the ban on production waste clearly shows that China may have a different agenda. It is quite possibly a purely protectionist measure designed to promote domestic collection of plastics scrap.

Now that the feared event has taken place, what should our industry do and will do? EU exported scrap worth about four billion Euros to China during 2016. USA exported scrap worth about five billion Euros to China during 2017. It represented 31% of their total exports. China used to buy about 7 million tons of plastics scrap annually. Who will fill the gap following the Chinese restrictions on imports? China used to be the centre of gravity when it comes to plastics scrap. It is no more the case.

Many companies globally have been diverting material to emerging markets like Thailand and other Southeast Asian countries. What are your views on this development?

The centre of gravity now has shifted to Vietnam, Malaysia, Thailand and Indonesia. Worldwide exports to Vietnam have increased from 50000 tons to 75000 tons per month over the course of the year. Exports from Europe have increased from about 12000 tons to 36000 tons per month during this period. An increase of 200%. The quantity is too large to be handled by one country in such a short time. Vietnamese authorities are therefore imposing some restrictions. Vietnam main port Ho Chin Min terminal CAI MEP has announced that it will not be accepting plastics scrap containers after June 25th. The restriction will continue until October 15, 2018.

Worldwide exports to Malaysia have increased from 50000 to about 90000 tons over the course of the year. Exports from Europe have increased from 15000 – 45000 tons per month; again an increase by 200%. It is also a huge increase. Imports from USA have doubled as well.

Exports from Europe to Indonesia have increased from 3000 tons to 6000 tons per month over the course of the year. This is also increase of 100%. Indonesia is also doing 100% inspections of plastics containers from the beginning of April. Exports from UK have increased tremendously particularly of polystyrene and mixed plastics. According to a leading businessman of the area it takes usually about one year to get import license in Indonesia, therefore such large increase in a short time is rather unexplainable. There was an important meeting on April 30th between government officials, plastics recycling companies and other stakeholders, where a concern was raised that increase in imports may reduce efforts to promote local recyclables collection.

Worldwide exports to Thailand have increased from 20000 tons to about 65000 tons per month from early 2017 to April 2018. An increase of over 200%. There is lot of uncertainty in the government policy. Newspapers are filled with stories of poor quality of plastics being imported from many countries. National police discovered violations during surprise checks and local press is asking for ban on imports of plastics scrap.

The Institute of Scrap Recycling Industries (ISRI) of USA advised that AQSIQ license requirements be abolished. China issued guidelines for third party inspections. Consequently there will be choice of inspection agency to exporters. This is a welcome development. Another positive development is that China has allowed import of PET flakes with certain conditions.

China’s actions have led to a disruption in recycling programmes and has also put pressure on companies exporting from the US and Europe due to a dramatic drop in exports. Please comment.

While there is substantial increase in exports to emerging markets, there is also a reduction in overall exports from Europe to the rest of world. Eurostat data show that export of plastics scrap from EU during the first quarter of 2018 decreased by about 40% to 550,000 tons from 860,000 tons in the same period a year before.

European Commission is also reviewing the regulations 1013/2006 which restrict the exports of scrap to many countries particularly African, Middle Eastern and South American countries. Under article 37 of the regulations the European Commission sends a written request to each non-OECD country seeking confirmation in writing whether waste may be exported to that country. Each country is given four options: prohibition, with notification, no controls, and no control but local imports controls. I understood that during the last such correspondence not many countries responded. We cannot export freely and without notification to those countries who do not respond.

I recently spoke to a senior officer at European commission. There is plan to send out these questionnaires again in September 2018. But I feel that system of note verbale and questionnaire has lost its significance. First of all, the receiving government officers in the respective countries are not aware of the implications of these European rules.

Thailand, for instance, in its response asked for ban on exports of plastics scrap from Europe despite that fact that there is a flourishing plastics recycling industry. It is importing every month about 65000 tons per month. Yet they asked for ban on exports from Europe. Clearly the Thai ministry that responded was not aware of the implications of the questionnaire.

Our colleagues in USA and Japan are exporting plastics scrap to Thailand about four hundred thousand tons every year. Although we learnt that some EU member countries are exporting small quantities to Thailand and I believe this is against the waste shipment regulations. The same is the situation with Bangladesh and Middle Eastern countries. Europe cannot export to these countries, but USA has been able to export freely. USA exports about 20000 tons of plastics scrap to UAE alone.

The European Commission is evaluating the Waste Shipment Regulation. I participated in an EU workshop on evaluation. I suggested if the importer has a valid import license from his government and he has eco-friendly recycling facilities, then we need not bother about this extra clarification particularly in case of non-hazardous goods like plastic scrap. I hope this questionnaire practice is abolished and we are able to save this additional administrative burden on the industry.

What is the way forward?

I believe it would take about two years for normalisation of the situation after the Chinese ban. There is huge increase in establishment of new recycling plants across the world. Collaborate with them to sell your scrap and buy their reprocessed plastics. This is what my company has done. Collaborate with the vendors who supply materials to companies like Ikea, Unilever, and Procter & Gamble. They would need lot of reprocessed materials.

forwardCoca-Cola consumes two hundred thousand bottles per minute. It will recycle a used bottle or can for every one the company sells by 2030. McDonald’s has committed itself to use 100% of recycled materials by 2025. Danone will use 100% recycled plastics for its Evian brand of Water by 2025. Procter & Gamble has committed itself to use 90% of recyclable packaging by 2020. Unilever, Ikea and Walmart, etc. are taking steps towards recycling under pressure from the consumers and customers.

Domestic recycling is increasing. I have learnt from the recycling machinery manufacturers that their order book is very high. There is substantial investment in recycling particularly in USA, India and South Americas. Clearly whatever the international trade scenario, there is tremendous push and pressure to use and produce recycled plastics. Somebody has to do it. Somebody is going to do it. Why not one of us?

Clearly the governments across the world are guiding, persuading and compelling the industry to promote recycling. Hong Kong has banned land filling of plastics. India has come up with regulatory changes to ensure producers responsibility. Therefore somebody is going to invest his time and resources in the increasing mandatory recycling business. Why not one of us?

Even the prime plastics producers are taking interest in plastics recycling. I believed that the interests of primary producers of plastics are directly opposed to the interests of recycling industry. But it is changing. We need to look for new markets as well. Africa is one with a lot of promises. South America is another region to go for. Do not handle lower quality of plastics scrap for long distance international trade.

On a positive note, the world has produced over 8300 million tons of prime plastics until now, as per a recent study. Of this 6300 million tons have become waste and sadly enough only 9% of this quantity has been recycled until now. Therefore, there is so much to do to improve recycling rates. Besides, the production of plastics is not going to decrease. There is huge ongoing investment in petrochemical productions across the world, so there will be continuous generation of plastics scrap. Somebody has to do something about it and somebody has to recycle the plastics scrap and somebody will surely do it. I can say with firm conviction that whatever the international trade scenario, the future of plastics recycling remains bright and will remain so in coming period.

Dr. Steve Wong, Founder & Managing Director, Fukotomi Company and Executive President, China Scrap Plastics Association.

Dr.-Steve-WongIn what manner has China’s regulatory measures to curb import of plastics scrap impacted the recycling sector globally? What does this change spell for municipalities, recyclers, traders and others engaged in plastics recycling?

Import ban

Prompted by mounting pressure to improve environmental conditions, China introduced an import ban on solid waste including plastics scrap from living source from end 2017, and for the rest of plastics scrap including industrial source will stop imports entirely from the end of 2018. As China’s annual import volume of 7 million tons amounts to more than 50% of the overall volume of exporting countries, it is hard for the rest of the world to take up such huge volume.

The immediate impact comes on the low-grade scraps especially those from municipality. As most of the exporting countries are not ready to cope with the market change, most of such low-grade items have to go for landfilling if an alternative outlet such as Southeast Asian countries cannot be directed or domestic recycling cannot be pursued.

Impacts

Under the current drastic shift in market, scrap quality has become a key driving issue for scrap items to stay or diminish in the trade. Waste from municipalities has to be recycled locally, which must be well sorted for processing such as PET bottles before going to wash-line. For waste items where automatic sorting is difficult such as MRF film, low-grade 3-7 might have to go to landfill.

The import ban has caused a large number of recyclers relying on imported scraps to stay out and about 30% of them relocated to Southeast Asian countries such as Vietnam, Malaysia and Thailand. They set up production capacities for more than 4 million tons/year within one year since mid-2017, though most of them lack recycling factory license and import license for plastic scrap. They were hard hit in the recent wave of regulatory control enforcement campaign in Thailand or port congestion of Vietnam. Without planning thoroughly beforehand, many of them have to sell their processing machines and withdraw even before the start of their factory’s operation. Massive move in of recyclers and flooding inflow of plastic scraps within a short time and beyond the tolerance of environmental standards was the cause of problems. What have happened to them is devastating.

Local recycling by western countries and having the recycled pellets supplied to China appears to be the most viable way out. Nevertheless, cost efficiency becomes key in competing with recyclers in ASEAN countries where exports to China can enjoy a 6.5% concession in tariff. Heavy investments for production efficiency cannot be avoided. For recyclers in USA, another risk issue to be considered is the uncertainty of extra tariff arising from Trade War.

For the traders, the current situation makes it difficult to survive due to the drastic fall in trade volume. Some choose to switch into recycling / processing which is not easy to be successful depending on various important elements, particularly for those who elect their factory in Southeast Asian countries.

Workers

Post-consumer plastic

Recycling factories that remain in China are hard hit by the limited import volume and have to resort to domestic plastic scrap supply which is not easy as such supply chain takes time to build up. Besides, quality and quantity is another issue while comparing with that of imported materials.

Market prices

Notwithstanding the adversities brought about by the policy changes of importing countries, there is barely any price increase for recycled materials and the net margins of recyclers are thinner due to high processing cost and extra shipping expenses.

Situation of small recyclers

Given the strict pollution control requirement for which heavy capital investments in water treatment and carbon emission control are necessary apart from more advance processing system to raise production efficiency, many small recyclers have their resources exhausted before start of production.

Some of the countries have been diverting the material to other emerging markets like Thailand and other Southeast Asian countries. What are your views on this development?

The massive flow of plastics scrap to emerging markets, particularly Southeast Asian countries have entailed a very chaotic situation. Taking Vietnam as an example, total shipments to Vietnam was approximately 3 million tons in 2017, which is 80 times of the average annual import volume of 37,000 tons in the preceding five years. As the shipments to this country had far exceeded its ports unloading capacity where some 9,000 containers were not taken up in 2017 and still stuck at the ports due to import permits problem, the measure of conditional shipment unloading has been implemented during the period June 25 – October 15 this year.

Thailand, where with thousands of containers stuck at ports currently, has tightened the regulatory control on recycling factories and banned plastic scrap imports since June this year due to media pressure. Triggered by a few cases of smuggling of e-waste, inspections on more than 2,000 factories are being carried out to detect violation of environmental regulation and labour regulation on hiring illegal labourers.

The new recycling capacities of 4 million tons which are mostly set up by recyclers from China are supposed to be capable of absorbing the increasing import volume but not ready to operate due to licensing and compliance issues apart from that of labour shortage.

Do you see more efficient collection & recycling processes coming into play soon in China? What is your forecast for China’s raw materials market?

China is pushing aggressively to raise the capacities and pollution control standards of domestic plastic waste recycling, targeting for annual increases of 1,000,000 tons from the level of 16.93 million tons in 2017. Aiming at strict pollution controls, recycling operations at non-licensed recycling parks will be eliminated and only the big players can survive. While scrap imports will come to a complete stop by end 2018, a supply gap of more than 5,000,000 tons in recycled raw materials in China opens for enormous market opportunities.

What are the positive developments you foresee within China, especially in the light of the Circular Economy model gaining momentum worldwide?

In line with the global trend, China is aggressively pursuing for circular economy. Brand promotion for products with recycled contents has been carried out with support of major corporations such as raw materials used for courier bags. While zero waste and zero carbon emission in recycling are going to be a global trend, it also opens up a lot of opportunities for recycling technology developments in the future.

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