The effect of Operation Green Fence on U.S. plastics recycling

The effect of Operation Green
Fence on U.S. plastics recycling
Jerry Powell
Resource Recycling
Portland, Oregon
www.resource-recycling.com
Why be concerned about
the Green Fence?
It’s all about the critical link
between Chinese recycling
market demand and the
success of U.S. plastics
recycling.
5,000,000,000
Plastics exports
4,500,000,000
4,000,000,000
3,000,000,000
2,500,000,000
2,000,000,000
1,500,000,000
1,000,000,000
500,000,000
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
0
1997
Pounds
3,500,000,000
Headlines
Today’s key questions
-- What does the fence do?
-- Why was it installed?
-- What has been its effect?
-- Will it continue?
Understanding the Chinese market
You need a license to ship to China.
Licensing is from the General Administration of Quality Supervision, Inspection
and Quarantine (AQSIQ), carried out by its
subsidiary, the China Entry-Exit Inspection
and Quarantine Association Reused and
Recycling Branch (CIQAR).
What does the fence do?
-- Huge increase in customs
inspections (now inspecting
nearly all containers from
licensees)
-- Custom officials are imposing tight
contamination standards
What does the fence do?
-- Rejected shipments are charged
port demurrage fees until the
containers can be sent back
-- Some export licenses have been
rescinded
The specifics of Operation Green Fence
•It’s based on a law enacted in 2008
•Chinese recycling organizations were not
consulted
•Program will run from Feb.–Nov.
•Prohibitives not to exceed 1.5 percent for
paper, 2 percent for mixed plastics
•Moisture content limited to 12 percent on
an air-dry basis
The specifics of Operation Green Fence
• Some licensees are being targeted:
-- Frequent change of import ports.
-- If declared price is lower than the
normal customs price.
-- Or if the declaration of freight and
insurance is low.
The specifics of Operation Green Fence
Some shippers contend custom
inspectors in China’s northern ports
are more strict than their
counterparts in the south.
Why was the fence installed?
Operation Green Fence cannot be
separated from the political changes
underway, especially given the
turnover in leadership 11 months ago
and concerns about graft among
governmental leaders.
The rise of Xi Jingping
•President, leader of the Communist Party and
head of the country’s military since March 2013.
•Reportedly concerned with corruption and the
environment – “Chinese Dream”
•“We will not sacrifice the environment for shortterm growth.”
•Those damaging the environment “should be
held accountable for a lifetime.”
Why was the fence installed?
The leadership’s views reflect a rise in
citizen interest, due in part to the
Internet and social media. This
includes worker safety concerns and
awareness of the negative effect of
small recycling enterprises
(workshops).
Resource Recycling
Portland, Oregon
Resource Recycling
Portland, Oregon
Why was the fence installed?
In addition, custom officials were
finding wide misuse of the current
AQSIQ export licensing system, with
licenses being sold or licensees
running scrap auctions.
Dramatic change was needed.
What has been the effect
of the fence?
Nearly 300 importers have had their
licenses suspended. Some of these
firms had loads sitting on the piers or
on China-bound container ships.
What has been the effect
of the fence?
The fence has generally not affected
high-value recyclables (nonferrous
metals) or commercially generated
materials (warehouse OCC). But it
has a major effect on markets for
other materials.
The effect on exports
Mixed Paper
Mixed Nos. 3-7 Plastics
Effect on mixed plastics exports
Effect on mixed plastics exports
Source: Resource Recycling, 2013.
Effect on mixed plastics exports
•Lowest-value plastics – mixed plastics bales, eplastics, film, etc. – hit the hardest.
•For some, the market disappeared.
•Many small processors have closed.
•Some of these plastics are being “salt and
peppered” into No. 1 and No. 2 bales.
•According to internal Chinese figures, scrap
plastic imports have fallen 6 percent.
•As with paper, not all due to the Green Fence.
What about MRFs?
What about MRFs?
•Bigger MRFs seem to be weathering the storm better
•But many were caught by surprise
•No other options – other countries not yet emerging as
viable destinations for material, short-term
•Some MRFs are stockpiling material
•Some re-run separated materials (~$.03/lb)
•Slowing down lines, adding pickers
•WM’s Bill Caesar – “Domestic mills are establishing their
own ‘green fences’”
•Some MRFs are landfilling some plastics
What about MRFs?
•Equipment manufacturers and analysts say
modern recycling equipment can “produce
Green Fence-level materials.”
•Many MRF operators report export buyers
have instituted new buying practices, such as
requiring photos of bales before loads are
picked up at the MRF.
What about MRFs?
•Some MRFs are exerting pressure on collectors.
•Some are now charging for materials, rather
than buying them, as they did previously.
•We are seeing an industry-wide concerted
effort to increase quality.
Will the fence continue?
The fence will reportedly operate at
least through November. But a key
questions remains.
What’s the outlook?
The good and bad news
Good News
Bad News
Not all materials affected
Lowest value materials affected most
Expected to boost bale quality
Could hurt budding markets
Could help domestic mills, reclaimers Could hurt MRFs, brokers
New recycling equipment can
handle it
Not all can afford the equipment
Nov. 30 end date
Many doubt this end date
Will likely continue
Will likely continue
The big question
If Operation Green Fence
continues, what happens to
recycling economics?
What’s green and has a
silver lining?
•Will help increase bale quality.
•Can help build domestic markets
•U.S. has processing capacity: Scott Saunders, KW
Plastics: “This is great news for American processors.
I don't buy the argument that MRFs have nowhere to
sell material. There are lots of ready recyclers here in
the U.S.” KW is America’s largest HDPE reclaimer.
The future for domestic markets
•Can’t overstate how pleased paper mills and
plastics reclaimers are.
•Many have adopted the new Chinese
standards.
•Many domestic consumers think the tighter
bale specs are permanent.
•“This time it’s real.”
Back to China
Will China keep its market position?
•Rising middle-class; more consumption by the
populace.
•The low cost of Chinese labor is changing.
•Increasing domestic collection of recyclables.
•Reliance on recovered materials from the West
could wane.
In the end
•Opportunities for communities that want to
produce cleaner recyclable materials.
•Possible MRF bale quality could pressure some
operators to re-capitalize or consolidate
operations.
•Potential public push-back if rumored
landfilling of recyclables is occurring.
•Quality expectations are “permanent,” and “retooling may be necessary.”
In the end
• This short-term crisis may have long term
ramifications:
-- alter sourcing practices
-- change sorting operations
-- produce new ways to select trading partners
In the end
James Fish, Waste Management’s Chief
Financial Officer:
“ It is causing our cost structure to go up, but
over the long-term, we will be able to get
higher prices for our materials.”
Drop me a line
Jerry Powell
Resource Recycling
[email protected]