China’s era of sustained industrial sector growth started shortly after then Chairman Deng Xiaoping began introducing economic reforms in the early and mid-1980s.
By the 1990s, China’s industrial growth entailed, in part, importing massive amounts of secondary commodities, including scrap metal, paper and plastic.
Scrap processors and traders who have been in the business for 20 years, and thus can be considered industry veterans, have only known a global market where Chinese companies were the leading overseas buyers. For many of these same traders and processors, making freight arrangements often has amounted to finding the most cost-effective container route to China.
China’s seemingly “no strings attached” welcoming attitude toward imported scrap changed perceptibly in 2013 with Operation Green Fence. That action, led by a coalition of Chinese central government agencies, was designed to enforce frequently ignored quality standards for imported materials, with a sharp focus on mixed plastics and mixed paper.
In 2017, the National Sword campaign and several following actions brought further restrictions, this time including contaminant limits that are tougher than the global standards and outright bans on certain scrap materials.
For traders and scrap processors, the landscape appears to have changed abruptly and permanently. Trade negotiators from North America and Europe are questioning China’s newly declared restrictions, but the Chinese government has positioned the scrap material bans as an internal environmental matter.
In 2018 and beyond, recyclers undoubtedly will watch for any changes on the policy front. At the same time, however, they also are researching and making capital investments designed to adjust to the new reality that involves finding new ways to prepare certain grades of scrap.
All mixed up
Operation Green Fence in 2013 caused some discomfort and changes to the scrap metal sector, but the major impact occurred within the material recovery facility (MRF) sector.
For more than a decade, operators of many of these plants had become accustomed to allowing outthrow and contaminant levels on export shipments to drift upward, as Chinese buyers desperate for sufficient volume offered relatively few quality complaints.
Changing attitudes in China perhaps can be ascribed partially to protectionism (and stimulating China’s domestic recycling activities), but the issue as described by China’s government is laden with references to “foreign garbage,” usually pointing to substandard mixed paper and mixed plastic shipments.
Plastic scrap, in particular, has been demonized, in part by a 2016 documentary called “Plastic China” that reportedly enjoyed wide viewership in China, perhaps even at the highest levels of the government.
The 82-minute documentary focuses on one woman and her 11-year-old daughter who work at and live next to a sizable plastic scrap sorting operation where “foreign garbage,” as referred to by the documentarians, is sorted by hand.
Media reports in China indicate the documentary struck a nerve in the nation, perhaps all the way up to the level of current chairman Xi Jinping. Without question, as China introduced its new scrap import restrictions in 2017, the restrictions were harsh and immediate in the plastics sector.
By the spring of 2017, thousands of containers of plastic scrap were being refused entry into Chinese ports. Some 5,000 containers were reportedly stuck in drayage in Hong Kong by April 2017.
According to John Paul Mackens of freight forwarder Kuehne + Nagel, who gave a presentation at the 2017 Paper & Plastics Recycling Conference Europe in early November, Europe sent 89 percent of its outbound plastic scrap to Chinese ports in 2016. In September 2017, Mackens said, just 46 percent went to Chinese ports, with Malaysia receiving 12.6 percent, Hong Kong receiving 10.7 percent and Vietnam 9.5 percent.
“You watch quality and solidify your commitments to make sure you have a product that is wanted and even preferred over other suppliers.” – Shannon Dwire, Millennium Recycling
As of early 2018, plastic scrap stockpiles reportedly are building at MRFs throughout the United States.
Of the two dozen scrap materials that faced outright import prohibitions in China, eight were forms of plastic scrap and one was a mixed paper grade. The other materials included metallic slags and residues and used clothing or textile shipments.
For MRF operators and other paper and plastics recyclers, the adjustments needed have been swift, and likely are permanent (in the plastics sector). With the current situation, sources say it can be hard to spot the opportunities within the challenge.
“We have scaled down plastics we take in,” states Kathey DeLano, vice president of sales at Dallas-based Texas Recycling. “Many items we have eliminated from accepting altogether. Too many plastics now have either no market or such a low value, it is not cost-effective to handle them.”
Shannon Dwire, president of Millennium Recycling, Sioux Falls, South Dakota, says, “I think it naturally makes you more respectful of your domestic partners, and you work harder to strengthen those relationships. You watch quality and solidify your commitments to make sure you have a product that is wanted and even preferred over other suppliers.”
For MRF operators, that can mean accepting commingled residential materials and separating or sorting them to a level where they appear not to have been part of a commingled collection program.
In the wake of 2013’s Operation Green Fence, technology suppliers to the MRF sector enjoyed a boom in new automated and optical sorting investments. While such suppliers are privately owned and do not report sales figures, this decade’s flurry of sales and installation announcements points to ongoing investments by MRF owners.
Municipal collection and hauling contracts on the MRF side and industrial service arrangements on the scrap metal side can make it difficult for recyclers in the U.S. to simply refuse newly restricted materials because of obligations that may be in the contract.
The sustainability movement among manufacturers and consumer products companies provides another incentive for recyclers to find solutions.
However, with the North American recycling sector largely in corporate rather than government hands, profit-and-loss considerations will play a major role in how processors respond to the new landscape.
In the MRF sector, suppliers of screening and sorting equipment and systems have announced a steady succession of sales to recycling companies who, because of contract commitments, will continue to accept a high volume of material and must then sort it thoroughly.
Ron Sherga of Arlington, Texas-based EcoStrate is among the companies that could be poised to benefit from China’s import restrictions.
EcoStrate, the 2017 Institute of Scrap Recycling Industries (ISRI) Design for Recycling award winner, takes in mixed and traditionally “difficult to recycle” plastic scrap and converts it to street signs, park benches and other manufactured items.
In early 2018, Sherga says he is enjoying access to additional material, which he had predicted would be the case. “EcoStrate has always expected a reshoring shift, and our EcoStrate model focused on pursuing large markets with sustainable profit margins without material subsidies. Our manufacturing capabilities are already falling far short of the demands we are seeing. This China effect has added to that demand and interest.”
“I think it’s a wake-up call that we must have facilities that make things capable of using these materials to succeed.” – Ron Sherga, EcoStrate
While he is glad EcoStrate is benefitting from the changes, Sherga indicates he would rather see more U.S. companies finding ways to process and consume American scrap materials.
“I think it’s a wake-up call that we must have facilities that make things capable of using these materials to succeed,” Sherga says. “Export plays a role and always will, but many companies got lazy and still lack resources or don’t fully understand scrap markets, and their struggles will get worse.”
To spin China’s import restrictions as a positive for U.S. recyclers can seem far-fetched as companies struggle to react in early 2018. When, or if, a longer-term reaction of pursuing opportunities takes shape in the ensuing months is likely to influence recycling company strategies throughout the rest of 2018 and into the next year.