Waste matters

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When China sneezes, the world shakes. Beijing’s environmental policies can have profound and rapid impacts on markets worldwide.

  • Chinese virgin polymer demand rises
  • Inefficient waste recycling units shut
  • Domestic waste feedstock use to increase

In July last year, China notified the World Trade Organization that it would ban imports of “24 kinds of solid wastes, including plastics waste from living sources, vanadium slag, unsorted waste paper and waste textile materials.” The waste had been turned into plastic bottles and other building materials such as carpets and piping.

In essence, China was telling the world: “We’re cleaning up our act and we don’t want your garbage anymore!” The ban took effect January 1, causing waste to pile up at foreign ports, particularly in the United States and Europe, as countries that had relied on China as a recycling destination were forced to look for alternatives. China accounted for around 56% of global plastic waste imports in 2016, so it is clear why so many countries have been rattled by the new policy.

However, the loss of this feedstock is likely to boost Chinese demand for virgin polymer, and new polyethylene (PE) capacity is being brought on- stream in places like the US, Middle East and India, all of which are eyeing the Chinese market. Scrap polyethylene accounted for 1.5 million to 2 million mt of imports in 2017, of which 50-70% was high-density PE (HDPE), and the remainder low-density and linear low-density PE, according to market estimates. Polyvinyl chloride and polyethylene terephthalate (PET) Following the ban, PET sales are tipped to increase by 5-6% in 2018. By mid- February, HDPE prices had risen by $70/ mt to $1,350/mt CFR China, according to S&P Global Platts data.imports were around 1.2 million to 1.3 million mt, and polypropylene about 680,000-700,000 mt.

Reforming the recyclers

However, increased demand for virgin polymer could also incentivize new domestic production to come online. Moreover, the ban is designed to reshape China’s own recycling industry. China is weak on recycling its own wastes such as ferrous scrap and plastic. A lack of financial incentives to collect and sort waste, and a fragmented industry comprised mainly of small players, has constrained development. The ban left spare capacity in the recycling industry, allowing the government to close environmentally-substandard operations.

China had around 1,800 plastic waste recyclers, turning over some 11 million mt/year. Most were located in Shandong, Guangdong and Zhejiang provinces along China’s east coast. An estimated third of capacity has been closed or idled. Others have had their volume allocations reduced.

But the intention eventually is for China to recycle more of its own waste more efficiently. This would align with Beijing’s plan to develop greener industries, and – as is so often the case with industries the government wants to support — such companies would be likely to enjoy favorable credit terms and other beneficial conditions. China has taken steps to support its ferrous scrap recycling industry; waste scrap is likely to follow suit. As a result, the rise in polymer import prices is likely — eventually — to be tempered by improved recycling rates of domestic Chinese waste as the government continues to focus on the creation of more environmentally-sustainable industrial activity. It is a prime example of how Chinese environmental policy impacts markets well beyond the country’s own expansive borders.

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