The once red-hot global trade of recycled plastic is facing a bitter winter. Market prices have plunged across the board, and even more troubling to insiders, demand appears to be disappearing.
Industry players in the United States are struggling to deal with the collapse of the Chinese and domestic markets.
``Orders to China basically dried up, and everybody I talked to in the industry is feeling the same thing,'' said Steve Anderson, owner of Killingworth, Conn.-based APC Recycling LLC.
Specifically, ``the higher-end materials PET, [low density polyethylene and] commercial film are continuing to move, but at much lower prices and at much smaller quantities. The mixed materials are not moving,'' noted Patty Moore, president of Moore Recycling Associates Inc. in Sonoma, Calif.
On the other end of the globe, containers of plastic scrap have been piling up at Chinese ports for weeks, as importers fail to claim the goods.
Because of the U.S. and global financial crisis, export-focused manufacturers are shutting down, and demand for resin definitely is plummeting.
Moreover, many of the bankrupt toy and appliances factories have left their suppliers including plastic scrap suppliers and reprocessors unpaid, said Toland Lam, president of the Plastics Recycling Committee of the Beijing-based China Plastics Processing Industry Association. This is causing cash flow problems, Lam said in a telephone interview from Hong Kong.
``Especially the smaller players, they just don't have the circulating capital to stay in business,'' Lam said.
Meanwhile, erroneous market speculation and risky financing have paralyzed some Chinese recyclers.
``During the Beijing Olympics in August, the government indirectly intervened with the market by shutting down factories,'' said Kathy Xuan, vice president of CPPIA's Plastics Recycling Committee. ``Therefore, people were betting that the market would come to a surge in the fall after the Olympics `hibernation,' plus September and October are usually busy times.'' Xuan also owns Romeoville, Ill.-based recycler Parc Corp.
Counting on a bull market, Chinese importers placed a heavier stake in scrap imports than they should have, she said.
``People put down a 30 percent deposit and used their house as a security to get a letter of credit from the bank for the full payment,'' Xuan said. ``When the scrap arrived, it was worth about a third of the contract price. So insolvent importers simply abandoned the shipment, the house and business, and fled.''
As abandoned plastic scrap imports piled up at the ports, even those with money started to hesitate to make purchases.
``People are shocked. They are not doing anything. It's as much psychological as a real problem in business,'' said Karen Zhou, director of Hebei Hua Ao Waste Processing Co. She believes that demand is still there, but people are assessing demand cautiously both in China and globally.
But the wait-and-see attitude in China is creating heavy pressure on exporters in the U.S., Europe and the rest of the world. Government statistics show that more than 50 countries and regions export plastic waste to China.
``We are warehousing materials in order to keep our suppliers from being overwhelmed with inventory. But this is a short-term fix at best, not a solution at all,'' APC Recycling's Anderson said.
Warehouses in Europe are filling up with waste plastic, according to Francis Huysman, co-chairman of the European Association of Plastics Recycling and Recovery Organisations of Brussels, Belgium. There has been very little export activity in the past few weeks, he said at the China Replas 2008 conference, held Nov. 6-7 in Beijing.
The extremely low prices and volume are hurting the plastics recycling sector as a whole, Anderson said.
``The entire industry is in danger of losing 20 years of momentum in just a few short months, if something doesn't change soon,'' he said. To keep plastics recycling viable, prices have to justify the cost of sorting, baling and marketing recycled plastics vs. sending waste to a landfill, Anderson added.
When will the market come back? Xuan said recent moves by the Chinese government to boost the economy already are restoring confidence.
``The Chinese government has plenty of cash, compared to other countries. It will be able to maintain the flow of the scrap market at a relatively low price range, say $300-500 per metric ton, before a bigger recovery,'' she said.
Lam also noted positive signs: ``The market changes quickly. As of this moment we are speaking, scrap prices have been floating with an upward trend and gained about 1,000 yuan [$146] per metric ton in the past couple of days.''
The real comeback may have to wait until after the Chinese New Year, which begins Jan. 26. Lam, who owns Humble, Texas-based plastics recycler and exporter T&T Group Inc., said Chinese factories are letting migrant workers go home early for the holiday this year, a measure to leave behind the upheaval of 2008 and recuperate for a new start.
``However, if the economic crisis in the U.S. gets deeper, I'm not sure I see much light at the end of the tunnel for the plastic recycling industry,'' Lam concluded.
Plastics News Asia bureau chief Steve Toloken contributed to this report.