China’s recyclables ban harbinger of wider US export pain

China’s recyclables ban harbinger of wider US export pain

Scrap plastic exporters are concerned because of rumors that China's ban, which currently applies only to residential plastics such as soda and water bottles, could be extended to post-consumer plastics. Photo credit: Shutterstock.

 
The impact of China’s environmental ban on some scrap imports, dragging down US exporters of scrap paper, plastics and textiles by 13.4 percent in the first 10 months of the year, will expand as its broader mission to forbid all recyclable imports progresses. 

Unfortunately for US exporters, the decline cannot be filled by new markets in Southeast Asia and India. Scrap paper, plastics, and textiles in the first 10 months of 2017 totaled 896,082 TEU, or 8.7 percent of total US containerized exports, down from about 1 million TEU, or 10.1 percent of US exports during the same period in 2016, according to PIERS, a sister product of JOC.com.

Scrap exports weighed on US export growth generally, as US exports rose just 0.2 percent year over year through October to 10.3 million TEU, compared with 3 percent growth in the same period of 2016, confirming that US exporters of these commodities are struggling to find new markets.

China last year announced bans on imports of certain types of scrap products from all countries, not just the United States, in order to reduce the harmful effect of contaminated waste products on its environment. Also, in an especially ominous announcement for scrap exporters and carriers, China plainly stated that its long-term goal is to replace imports of virtually all recyclables, which are used as inputs for manufacturing, with domestically sourced scrap products.

Due to the importance of the Chinese market, total US exports of paper, plastic, and textile recyclables is plunging. US wastepaper exports from January through October 2017 declined 14.3 percent year over year, to 773,369 TEU, plastics fell 7.1 percent, to 117,951 TEU, and textiles also declined 14.3 percent, to 4,714 TEU.

The hardest hit carriers have been Zim Integrated Shipping Services, Hapag-Lloyd, and Maersk Line, which recorded declines of 50.2 percent, 48.8 percent, and 40.7 percent, respectively. Zim handled 17,069 TEU in the first 10 months of 2017, while Hapag-Lloyd hauled 30,765 TEU, and Maersk moved 97,722 TEU.

Further, what is also scary for scrap exporters and carriers is that China’s bans were announced just last year, and the target implementation date was set for Jan. 1, 2018. However, China has yet to announce that the bans are officially now in effect. Announcement of the pending bans last year set up a chain reaction of US shippers pulling back on their exports, with Chinese recyclers slashing their imports from the United States and other countries.

China last summer surveyed 1,792 companies that in some way handle or use scrap imports. The government determined that 60 percent were non-compliant and in the future would therefore be subject to a wide range of punishments, from fines to closure of the facilities. The fear and uncertainty of what might happen caused exporters and importers to pull back. PIERS numbers for US wastepaper exports show a steady decline of 8.7 percent in July, 17.2 percent in August, 20.4 percent in September, and 15.9 percent in October, the latest month for which exports are available.

Furthermore, uncertainty is expected to continue to affect the market in the coming months because China has yet to announce actual deadlines or a timeline this year for the issuance of penalties, import permits, and regulations affecting other recyclables that it intends to ban. “We are entering a whole period of abnormality,” said Adina Renee Adler, senior director of international relations at the Institute of Scrap Recycling Industries (ISRI).

For example, China has stated that in the coming years it intends to announce and enforce bans on other scrap products. “So, will it be ad hoc? We don’t know,” she said, although the industry expects that such bans will be announced more frequently in the coming years than in the past.

Exporters of scrap plastic are concerned because of rumors that the ban, which currently applies only to residential plastics such as soda and water bottles, could be extended to post-consumer plastics that have been cleaned and pelletized. “They are sparkling clean,” Adler said. ISRI has asked the Chinese government to clarify this issue, but has not received an answer, she said.

The impact of the scrap paper ban has been devastating, even though it currently applies only to mixed paper, a category that accounts for 15 percent of all US scrap paper exports. Old corrugated containers comprise 60 percent and newspapers 35 percent of US scrap paper exports.   

US exporters of scrap products are increasing their shipments to countries in Southeast Asia and the Indian Subcontinent, but although the percentage increases may be large, the actual volumes are not enough to replace what has been lost to China. According to PIERS, scrap paper exports to China in the first 10 months of 2017 totaled 603,751 TEU, or roughly 550,000 more TEU than were shipped to India, the number two market. Plastics exports to China were 87,041 TEU, or about 80,000 more TEU than to Vietnam, the second-largest market. China is the second-largest market for textile recyclables after the Philippines, but the volumes are small and China’s imports in that category totaled only 632 TEU.

Plastics exports to Southeast Asia recorded some strong percentage gains, but the volumes are still relatively small. Plastics exports to Vietnam increased 113 percent to 7,623 TEU, 285.5 percent to Malaysia to 6,731 TEU, 32.8 percent to India to 5,785 TEU, 77 percent to Indonesia 2,280 TEU and 17.1 percent to Thailand to 1,905 TEU.

US wastepaper exports to the top three markets actually declined compared with the first 10 months of 2016. Exports to China declined 15.9 percent to 603,751 TEU. India was down 13.6 percent to 54,892 TEU and South Korea was down 13.4 percent to 35,018 TEU.

Adler said ISRI’s members are taking various approaches to the China bans, with some saying they are still bullish on China and they feel they can meet the requirements, while others are actively seeking new markets. However, in a cautionary note, exporters are being informed that some of the growth in exports to Southeast Asia is taking place because Chinese plants are moving there, and down the road those countries could step in with their own bans.

Los Angeles-Long Beach is most affected of all US ports by the bans. Plastics exports were down 14.2 percent to 49,642 TEU, textiles were down 13.1 percent to 1,138 TEU, and wastepaper was down 18 percent to 276,739 TEU, according to PIERS. New York-New Jersey, the  second-largest gateway, was down 10.7 percent to 16,067 TEU in plastics and 6.4 percent to 165,257 TEU in scrap paper.

Contact Bill Mongelluzzo at bill.mongelluzzo@ihsmarkit.com and follow him on Twitter: @billmongelluzzo.