Defend against China’s national sword: Rebuild. Renew. Recontract.

The recyclables market is about to undergo an enormous change. The Chinese government has targeted certain scrap materials from being imported in the future. Given that scrap is the U.S.’ biggest dollar value export to China, limiting imports to the country could be a game-changer for the U.S. recyclables material market.

Although the Chinese government began its crackdown on imports in 2013 (Operation Green Fence) by rejecting loads of scrap material that simply did not meet certain standards, all-out bans of certain recyclables recently have been proclaimed and the National Sword customs crackdown has been underway since earlier this year. The most recent announcement (Announcement No. 39 of 2017) indicated that by Dec. 31, 2017, 24 types of materials, including eight types of postconsumer plastics and unsorted scrap paper, will be banned from import to China.

With imports being rejected at Chinese ports, the supply of source-separated recyclables will exceed the demand for feedstock and likely will push prices down on recyclables in the U.S. The lowest quality materials will be the first to be eliminated, including mixed bales of plastic bottles and bales of plastic film. Even though we know recyclables are commodities that are always responding to market forces that create price fluctuations, the impact of China’s import policies could be a full-scale game-changer.

What is the best defense against National Sword and these proposed bans? Rebuild. Renew Recontract.

Even though we know recyclables are commodities that are always responding to market forces that create price fluctuations, the impact of China’s import policies could be a full-scale game-changer.

Rebuild

As the export market tightens, U.S. brokers and buyers of recyclables will demand higher quality materials at lower prices. To stay operating, recyclables processors will want to be in a position to market to these buyers. Having quality materials will secure this capability. There is demand for feedstocks, but the fleet of processors is not yet prepared to supply them. Technological improvements to processing equipment, such as the latest screens and optical sorters, will make it possible to produce these higher quality outputs. The time is now to upgrade material recovery facilities (MRFs) with this newer equipment to ensure that recyclables can find a market in the U.S. at a price that sustains operations.

Renew

It is important to have a known and secure market for the volumes of recyclables processed, particularly with lower quality recyclables. Therefore, having a strong relationship with the buyer of these commodities is essential. The time is now to renew your relationship with your existing markets. Reiterate your loyalty and establish a long-term contract for your processed materials, perhaps at an indexed rate. This could cement your relationship and help to sustain your operations through the tough times ahead.

Recontract

As part of solid waste management strategies, local governments need to see that recyclables always have a place to be marketed. Transforming curbside recyclables into feedstock for manufacturing, however, requires processing. Some contracts assume revenue from sales of processed recyclables will not only cover the costs of processing, but also will create profit. If National Sword puts downward pressure on U.S. recyclables prices, processors are likely to find themselves running a deficit on certain commodities. If a processor goes out of business, everyone loses. The time is now to think about recontracting between those that provide curbside recyclables feedstock and their processors. It’s recommended that contracts be revisited so the risks are shared and they are more sustainable.

The best defense is a good offense. Consider how you are going to rebuild, renew or recontract to build your shield against National Sword and China’s proposed import bans.