Chaos is the word that best describes the market for many recyclable commodities today. Since last month the Chinese government has become more strident in their resolve to ban the importation of MIX paper and all grades of scrap plastic. Mill buyers have become more fearful. Orders for MIX are virtually non-existent and are not expected to return. Ditto for FILM and Mixed Rigids Plastic.
In addition to the import ban of scrap plastic and MIX paper, the Chinese government has held up renewing buyer import licenses. Without these renewals, many buyers have completely stopped their purchases and have no idea when they can resume buying. This has lowered demand (artificial shift to the left) for ONP and OCC both of which are down significantly as a result.
As if all of that wasn’t bad enough, the shipping lines are starting to publically question their commitment to serving recyclers because so many of their containers have been impounded at Chinese ports by the government. All of the above has created an unprecedented situation the likes of which we have never seen before.
Where are we likely to go from here? I think two factors are most important to answer this question. The first factor is the status of the underlying demand from packaging materials and products made from scrap plastic. Currently, there is no doubt that the demand for both of these products is strong. All of the major world economies are growing and demanding increasing amounts of these materials. Mills have orders they want to fill using the paper and plastic we provide.
The second factor is the Chinese culture. In the past, the Chinese government has demonstrated an enormous ability to pursue self-destructive initiatives, sometimes for many years. The “Cultural Revolution” of the 1970’s is an outstanding example of this proclivity. The government is clearly on a path with recycling commodities that is in sharp contrast to the desires and needs of their domestic paper mills and plastic manufacturers. Thousands of Chinese workers will lose their jobs if the government doesn’t change course.
With both of these factors in play at the same time, it seems likely that the longer the government maintains it current course, the more intense will be the pressure from industry to change direction. Eventually, the government will have to make some adjustments to their policies.
What does this mean for pricing of recyclable commodities in the future? Given both the seasonal factor of declining demand we experience each Fall as well as the current Chinese government policies, we are expecting further price declines for paper and low end plastic in the months ahead. We are hopeful the Chinese government will find a way to save face and make a mid-course correction to their National Sword 2017 initiative and allow more buyers to return to the market sometime this winter. Improved pricing will surely follow.