Asia’s Plastic Scrap Shake Up

Jun 19, 2019, 16:47 PM
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May/June 2019

By Megan Quinn

Asia-PlasticsFor the last 18 months, plastic scrap recyclers have been adjusting to the fallout from China’s ban on nearly all plastic scrap imports. After more than 15 years of importing record volumes of scrap material to feed its economic boom, China announced in 2017 that it would stop accepting many types of scrap and would impose extremely tight quality restrictions on the limited range of products it would still accept.

This announcement shook up the international scrap trade and had ripple effects through Southeast Asia. Many exporters that had once sent their plastic scrap to China rerouted their cargo to smaller recyclers in nearby Southeast Asian countries, which were suddenly overwhelmed by huge volumes of scrap—and trash from illegal shipments—at their ports. Unable to handle the huge flows because of a lack of processing capacity and less developed infrastructure, and with concerns about pollution from illegal shipments and processing operations, countries including Malaysia, Vietnam, Thailand, and India enacted their own bans and import restrictions starting in mid-2018, further shifting the flow of plastic scrap as the year went on. As industry participants conclude that these trade restrictions are likely here to stay, some have focused on domestic processing and consuming markets.

 The uncertainty and change were painful at first, says Hamilton Wen, director of the plastics division for Newport CH International (Orange, Calif.), which brokers plastic and paper scrap. “Two years ago, 95% of our plastic scrap was going to China. It was a mad scramble to figure out new secondary markets, and things were constantly shifting.” Now he sees it as a growing pain that forced recyclers to be creative to find business opportunities while paying better attention to plastic scrap quality. “At the end of the day, our material is cleaner than it has ever been, and bale prices are good. It’s not really about what country it can go to, but it’s that the market does still exist and [plastic] does have value. … After going through all this turmoil, I’m less concerned than I was before. The industry is resilient.”

Closing the gates

U.S. International Trade Commission data shows just how dramatically the plastic scrap export picture has changed in the last three years. In 2016, China imported about 40% of the United States’ total plastic scrap exports, about 775,600 mt worth about $282 million. In 2017, 33.5% of U.S. plastic scrap exports, or about 557,820 mt worth $191 million, went to China. But in 2018, China imported just 4.5% of this material stream, about 48,160 mt worth $21.5 million. Overall, China’s imports of plastic scrap from all countries dropped 99% in 2018, though it is still one of the world’s top importers of scrap plastic, according to China’s General Administration of Customs.

With China’s appetite significantly dwindling, exports to Southeast Asian countries, including Malaysia, Thailand, and Vietnam, started growing rapidly from mid-2017 to mid-2018—sometimes doubling or tripling in that time period. Newport CH International was among the recyclers sending their scrap to such locations, Wen says. “The processors we had been shipping to [in China] for the last 10 years were fanning out to Vietnam, Thailand, and Indonesia,” he says. “The people we were shipping to have the expertise and know their end markets, so we followed them. It was rocky and very stop and go.”

The country that saw the most dramatic shift after China’s ban was Malaysia. In 2016, it imported a total of 287,673 mt of plastic from countries across the globe, but in 2017, that number jumped to 549,786 mt total, according to UN Comtrade data. The United States is one of the countries that significantly increased its exports there. In 2016, the United States exported 38,790 mt of plastic scrap to Malaysia. In 2017, that number more than tripled to 121,125 mt—7.26% of the United States’ total plastic scrap exports, making Malaysia the top destination for exported U.S. plastic scrap that year. In 2018, Malaysia imported 200,941 mt from the United States, according to USITC data. That number might have been even larger if Malaysia had not enacted a three-month ban on plastic scrap imports in July 2018. Then it announced in October 2018 it would stop issuing new permits for importing plastic scrap and will stop importing all types of plastic scrap by 2021.

High volume is just one of Malaysia’s problems. As greater flows of scrap started arriving in ports, the country also had to contend with many new unlicensed, unregulated, and otherwise illegal recycling plants that began opening throughout the country. These facilities have caused serious environmental pollution and have negatively impacted the water supply, crops, and health of people living nearby, according to a report from Greenpeace East Asia.

At the same time, low-grade plastic that is generally not recyclable has been smuggled into the country in shipping containers labeled as another type of import so it can dodge permit restrictions and import bans, Yeo Bee Yin, Malaysia’s Energy, Science, Technology, Environment and Climate Change Minister, told Malaysian newspaper The Star. The country considers these shipments trash, not recyclable commodities, so they must be shipped back to the country of origin as specified under the Basel Convention, an international treaty meant to control the movement of hazardous waste between countries. “Malaysia will not be the dumping ground of the world,” she told the newspaper.

Vietnam also faces similar problems with a surge in illegal imports, unregulated processing, and pollution—problems that have prompted the government to ban all plastic scrap imports by 2025. The United States significantly ramped up its exports to Vietnam following the China ban. In 2016, the United States exported 66,747 mt of plastic scrap there, but in 2017, it sent 137,042 mt, making Vietnam the third-largest importer of U.S. plastic scrap by volume, according to UN Comtrade data. In 2018, Vietnam only imported about 71,183 mt from the United States in the first half of the year. That number might have doubled to more than 149,700 mt if Vietnam had not implemented a temporary import ban in June 2018, cutting off most imports for the rest of the year. Despite the import ban, Vietnam was still the sixth-largest importer of U.S. plastic scrap in 2018, taking in 7% of the United States’ total plastic scrap exports.

Other Southeast Asian countries have also followed suit with bans or import restrictions. Thailand, which took in more than three times as much plastic scrap from the United States in 2018 as it did in 2017, will ban all plastic scrap imports by 2021. Indonesia is considering tightening restrictions on plastic scrap imports and has taken steps to ban single-use plastics in some major cities. Indonesia is the world’s second-largest contributor of plastic pollutants in the oceans after China, according to the journal Science.

All Eyes on India

As U.S. exporters watched these Southeast Asian nations take in record shipments of plastic scrap, they knew that no single country had the capacity to fill the huge hole in the market that China left. However, earlier this year, India was in the final stages of developing a national recycling policy that many hoped might generate new plastic scrap trade avenues and increase the level of recycling within India, says Adina Renee Adler, ISRI’s assistant vice president of international affairs. India had initially banned plastic scrap imports in 2016, but it later changed its rules to allow a limited number of importers to operate in “special economic zones,” Adler says.

Then, on March 6, India made an announcement that blindsided even industry officials: It called for an immediate ban on all scrap plastic imports, even in the special economic zones. Immediate implementation would have left cargo ships en route with now-banned cargo in limbo and would not allow exporters in other countries time to adapt to the change, so ISRI and several other industry representatives reached out to government officials to explain their concerns. India now plans to enact the ban around Aug. 31 to allow time for companies to arrange their final shipments.

Adler says there are some similarities between India’s and China’s plastic bans, such as the abrupt way the countries made the announcements before telling the World Trade Organization. Yet India’s motivations are slightly different. “India is a country that is already grappling with pollution issues, but they’re not blaming the imports,” Adler says. “It’s just that maybe the imports exacerbate a problem that already exists.”

Basel Convention concerns

As Southeast Asian countries adjust their plastic scrap import policies to adjust to the new reality of a post-China market, global environmental leaders considered more sweeping proposals that will mean significant changes to the global flow of plastic scrap. The Norwegian government recently proposed changes to the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal with the goal of reducing global plastic pollution, particularly marine litter. Adopted in May, the changes reclassify certain “plastic waste and scrap” as a material that needs the informed consent of the receiving country before a shipper can send the material overseas. Plastics from the United States could still ship to Organization for Economic Cooperation and Development member countries, such as Australia, Japan, and much of the European Union. But the United States is not a party to the convention, meaning U.S. companies would not be able to ship to other countries and could only receive material from countries where a special agreement is in place. An amendment that would replace the prior informed consent procedure with a prohibition on such trade of “hazardous wastes” is in the works, she adds. “If the ban amendment is adopted by just two more countries, then all such trade with non-OECD countries will be prohibited,” Adler says.

Representatives of Asian countries hit hard by plastic pollution and illegal dumping like the recent change “because they see it as a way to stem the trash coming in,” Adler says. Yet recyclers fear the proposal would incorrectly classify commodity-grade plastic scrap as trash. They also worry the initiative will hamper free and fair trade and mire shipments in paperwork problems that would back up containers for months at a time, she adds.

Surendra Borad Patawari, chairman of plastics recycler Gemini Corp. (Antwerp), says the change could lead to more procedural issues that would be counterproductive to the process of shipping clean, marketable material. “It could be very detrimental to the recycling industry,” he says.

Adler attended the Basel Convention meetings in May, where ISRI supported forming a partnership with government and industry stakeholders “to find a solution so the trade of plastic scrap is not highly impacted, but it still addresses the issue of marine litter,” she says.

Building domestic demand

For some North American plastics recyclers, plastic pollution concerns and dramatically changing markets in Asia are enough reason to seek new business opportunities domestically instead of trying to ship scrap overseas. Sunil Bagaria, president of GDB International (New Brunswick, N.J.), says the plastic pollution affecting Southeast Asia should be a wake-up call to all recyclers. “We saw what was happening there, but now we want to send them more plastic scrap? We have depended on shipping our scrap overseas for too long,” he says. In 2018, the company added new machinery to produce pellets from recycled HDPE, LDPE, and LLDPE plastic film it collects from places like grocery stores. Bagaria says the finished pellets will be sold to local companies that make plastic film products. “We have no reason” to sell overseas, he says, because there is a “robust demand” in the United States for postconsumer resin.

The company is in the early stages of converting the film into pellets, and it has taken some tinkering to create a consistent quality recycled resin, Bagaria says. Processing in the United States also means labor costs are higher than they might be overseas, and recycled resin has to compete against low-cost virgin resins. “But it’s not all doom and gloom. The China ban was the shock we needed as a company,” he added during a panel discussion at the Plastic Recycling Conference in March. “We woke up because of the China ban, and I’m glad we woke up. If [plastic] is a valuable raw material for other countries, it is for our country, too.”

In Oregon, Keith Ristau of Far West Recycling (Hillsboro, Ore.) says China’s import ban also changed the way his company handles all of its plastic scrap. It was a tense transition, but “we don’t need to depend on Asia anymore,” he said in the same panel discussion. Before the “big ban,” 60% of the company’s plastic scrap went to China. All of the company’s HDPE milk jugs, all of its commingled 1–7 plastics, and half of its colored HDPE also went to Asian markets. Today, all of it goes to domestic processors. Bulky rigids, which was a catch-all category for materials employees weren’t sure what to do with, also went to Asia. Bulky rigids now go to a secondary sorting facility. “None of this goes to China, and none goes to landfill anymore,” he said.

Far West Recycling has improved its quality in order to compete domestically, Ristau said. “Before National Sword, our PET bales were 90% pure bottles and 10% other plastics, like HDPE natural. We [have since] slowed everything down, added pickers, and now our PET bales are 98% PET, and all of it is shipped domestically,” he said at the conference.

Wen says Newport CH International will consider buying and trading more scrap domestically, too. “We’re looking at where it might make sense as far as prices go,” he says. Labor and environmental laws in California may make it too expensive for recyclers set up new ventures there, but he predicts it’s a possibility for the future. “You want to recycle scrap where it’s created. Nobody likes to import other people’s waste.”

Bob Cappadona, vice president of Casella Recycling (Charlestown, Mass.), says this isn’t the first time recyclers have had to reckon with changes in China. Before 2013, Casella sent about 25% of its plastic scrap to Asian destinations including China and Indonesia. Then China implemented Operation Green Fence, an initiative that increased the scrutiny of scrap imports over concerns about waste and contaminants. The company saw the writing on the wall, so it changed its business model for plastics, he says. “We move a million tons a year of recyclables, and we’re a public company, so our job to those investors is to take risk out of the market,” Cappadona says. “We saw [Green Fence] as a risk in 2013: The stockpiling of material and material not moving.” By the beginning of 2014, all of its plastic scrap was marketed in North America.

 Cappadona thinks the move from exporting to Asia to keeping plastic scrap in North America is good for the whole industry. “There’s plenty of capacity from a domestic standpoint, with more coming online in the next 24 months,” he says. For example, CarbonLite announced in November it will build a new rPET facility in Pennsylvania, on the heels of its new facility built in Texas. “For the most part, we have also seen steady movement [of plastic] and consistent prices” for most plastic scrap grades, despite a recent dip in price for natural HDPE, Cappadona says. “Overall, the outlook for recycling the traditional plastic seems bright in the near future. Recycling isn’t dead by any means,” he says.

Investments from China

China may not be accepting many scrap plastic imports anymore, but it still needs recycled plastic feedstock—and some Chinese companies see North America as an ideal place to build plants that can turn plastic scrap into that feedstock. One such company is Roy Tech Environ, which announced in 2018 that it would open a plastic scrap processing facility in Grant, Ala. The company is a subsidiary of a Shanghai plastics processor that originally opened a buying office in nearby Huntsville, Ala., to source feedstock for its processing facility in China, Resource Recycling reported in February 2018.

Chris Cui, director of Closed Loop’s China Program (New York), believes North American and Chinese recyclers can mutually benefit by working together on business ventures—projects that could tap into $230 billion in recyclable plastic not currently getting collected per year due to lack of collection infrastructure, cost-competitive recycling technology, or demand for end products, she estimates. She anticipates more Chinese investors will get involved in the recycling industry in the United States and Canada in the next few years, and Closed Loop’s China Program aims to help such investors connect their capital and build relationships throughout North America. Some of the companies Closed Loop works with plan to convert plastic scrap to feedstock in North America, then ship it to Asia. Other investors are exploring the possibility of using that feedstock to manufacture recycled plastic products in North America.

Closed Loop helps guide Chinese investors through local regulations, which vary significantly from how things might be done in China, she says. “A lot of companies have shown interest [in coming] to North America, but in our view, it’s not that easy for Chinese companies to do well because the culture is really different in China than in the United States,” she says. “Also, the U.S. is a big country, so these Chinese companies need to think strategically so that they can supply enough quality feedstock and find the right location that is close to ports and railroads.”

The program also aims to connect Chinese and North American investors to benefit from each country’s strengths and weaknesses, she says. North America needs to be able to process materials at a lower cost, which is something China knows how to do well, she says, and China currently needs a better collection infrastructure, which is an area where North America is more advanced. For example, Cui says, AMP Robotics (Louisville, Colo.), a company that sells artificial intelligence-assisted robotic sorting technology throughout North America, is already marketing products in Japan. “We see huge potential for companies like this in Asia because that’s something that Chinese companies really need,” she says.

Looking ahead

Investing in North American plastics recycling and consuming facilities is just one strategy for meeting China’s demand for recycled resins. China must also figure out how to more efficiently collect its own recycling, Cui says.

“In the short term, [China’s] domestic demand is not being met, and that’s why they need to come to the United States or other countries” to meet it, she says. “Right now there is not enough supply, especially not good quality” of plastic scrap available from Chinese sources. “In the medium and long term, as China continues to build the infrastructure, they should be able to meet that need,” she says.

During trips between the United States and China, Cui says she already sees changes in how Chinese residents collect recyclable materials. “For the longest time, the recycling industry in China was made up of waste pickers, an informal workforce, especially for PET bottles. But now, the government is consolidating and developing industry zones, so we see more [formal] companies entering the collection supply chain,” she says. Chinese investors are also working on Internet of Things technology to make collection and transportation of recyclables more efficient. Changes in bigger cities “are happening rather fast,” like an app that pays residents for returning recyclables such as beverage bottles and cans when they take them to a smart recycling station.

China isn’t the only country learning to develop its domestic recycling infrastructure. It’s a trend Cui expects to see in many developing markets in the coming years. “In the short term, we can look for new destinations to send plastic scrap, but in the long term—not just in China, but in India and other countries—they are going to be doing more and more of their own domestic recycling. That’s why we should think about other ways to work together.”

Megan Quinn is senior reporter/writer for Scrap.

China banned nearly all plastic scrap imports in 2017, and the fallout led other Asian countries to set restrictions as well. While some search for new export destinations, others want to keep the material closer to home.
  • 2019
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