The market for recyclables has continued to move lower in February.  This results from the precipitous decline in demand from Chinese buyers….Stop!!  — Somehow the normal “economist speak” just doesn’t do justice to the current state of the market for recyclables.  A better way to describe the current situation is something like “The market for paper recyclables is a total mess.”  Or in yet a different way, “As bad as things were in January, they have gotten worse in February”

Why a mess and how are conditions worse?  Well for one, we have heard from several of the largest Chinese buyers that their firms are not placing any orders for the entire month of February.  The buyers are not placing orders in February because they are unclear about what quality will ultimately be acceptable and they are equally uncertain about who can provide it.  Secondly, the Chinese government is now asking for quality beyond even the published standards of one-half of one percent for ONP by including new requirements for at least 70% groundwood content and not to exceed 2 % brown fiber.  The Chinese buyers know most areas of the US no longer have enough printed newspaper to meet this new standard.

With China out of the market for paper altogether, recyclers have been forced to find alternative places to sell their paper.  This process is a bit like playing the kid’s game of musical chairs.  There simply isn’t enough demand form non-Chinese mills to cover all of the supply.  Incredibly, despite this demand supply imbalance, Pioneer was able to secure the orders needed for all of January and most of February, albeit at a dramatically lower price.  In spite of this success, we remain worried about our ability to find the orders we need for March.  Should we be unable to do so, landfilling of sorted paper is a serious possibility.

What does the current situation inform us about the future?  Looking forward Pioneer is planning for:

  1. Continued rigorous enforcement of China’s new quality standards.  The government is not likely to back down.
  2. China will buy finished rolls of paper from other countries to meet their own packaging needs rather than buy “sub-standard” recycled material on the world market.  The increased demand for rolls will encourage new roll production from all countries that can economically ship to China including the West Coast of the U.S…  While this process will likely takes years, each new mill or paper machine conversion will increase demand for recycled fiber.
  3. Chinese manufacturers will have to pay more for the packaging materials they need to ship their products for many years to come.  This will encourage them to seek substitutes for paper packaging materials.  
  4. Substitution will mean a structural reduction in demand for recycled fiber worldwide which will dampen the price all other things being equal.  

With regards to future pricing of recycled materials, values are likely to remain low for the foreseeable future.  As new roll production is brought on line elsewhere in the world, pricing should improve subject to the use of substitute packaging materials by Chinese manufacturers.   

With regards to the new quality requirements, I want to assure you that Pioneer is working daily to develop and implement new processes that will improve our quality.  Additionally, Pioneer is working with equipment vendors to add new optical systems for the sorting of paper which should also improve quality.

 Even with all of our process changes and expected investment, we still will need your help to encourage residents to provide only acceptable items for recycling in their collection cart.  Attached to this email is a suggested list of acceptable items for recycling which has been endorsed by both the Washington Refuse and Recycling Association (WRRA) and the Oregon Refuse and Recycling Association (ORRA).  We hope you will work with your customers to encourage adoption and adherence to the attached list of items.