Hong Kong recycler builds gate in China's 'Green Fence'

HONG KONG — In a nondescript building shaded by palm trees in semirural Hong Kong, you can get a glimpse of the future of the recycling business.

Here, far from downtown's gleaming skyscrapers, is longtime scrap broker Fukutomi Co. Ltd.'s latest initiative to become a vertically integrated plastics company — and cope with tough environmental regulations from the mainland.

On the concrete floor inside, employees feed “Wal-Mart film” — industry jargon for the low density polyethylene bags and film used to wrap shipped goods — into a state-of-the-art shredder from Austria's Lindner Recyclingtech GmbH. Once shredded, the plastic passes on a conveyor belt beneath powerful magnets that snatch up twist ties and other bits of embedded metal.

Another pair of employees shovel the shreds into an extruder from Erema Engineering Recycling Maschinen und Anlagen Ges.m.b.H, also of Austria. The machine's $2,000 filter removes wood, dirt and even water; this waste is used in asphalt paving. The purified plastic is extruded, cooled, cut into pellets and bagged for shipment across the border into the heavily industrialized Pearl River Delta.

Fukutomi director Udo Wong, who is in charge of mainland sales, said that while the machinery can be modified to handle just about any type of plastic, the facility focuses on turning out LDPE pellets.

Until a few years ago, Wong explains, closely held Fukutomi (2014 sales: HK$1.06 billion, about US$137 million) would have shipped the scrap directly to Chinese buyers, primarily in the Pearl River Delta. But in 2013, Beijing instituted tough new controls — popularly known as the “Green Fence” — on importing mixed and unclean scrap.

“In the long run, [the Green Fence] is good for the country and also for business. In the short term, it's a real challenge,” Wong says. “This is part of our solution.”

The high cost of doing business in Hong Kong — even here, in Yuen Long village — prompted Fukutomi to invest in the costly European machinery. That filter may be pricey, but it needs to be cleaned only three or four times a year, saving on labor.

A daily challenge is the tremendous variety of scrap, which can be contaminated with dirt, paint, laminate and even forgotten tools.

Wong's brother, Uwe, the plant manager, watches workers meticulously pulling apart and examine a bale. He indicates an unused IV drip that had been buried beneath layers of film. “We hate the bags inside bags inside bags. You never know what's inside,” he says.

The brothers are the sons of managing director Steve Wong, who founded Fukutomi in 1984 as a humble pick-up-and-sell recycler. Both brothers started in the family business on the shop floor, shoveling scrap and driving forklifts.

“The business was a lot easier before,” says Udo Wong. “We were the people who could get [scrap] material from foreign companies. Now we're facing competition from Chinese companies going directly to suppliers in the United States and Europe.”

Fukutomi's solution: add value and improve quality control, by moving up and down the plastics recycling pipeline. On the supply side, the company has networks of buyers throughout Europe and the United States. On the output side, subsidiary Fukutomi (Shantou) Industrial Ltd., in eastern Guangdong province, designs and makes molds; compounds PET, polylactic acid and ABS; and manufactures pallets, cups and food packaging. At Fushan, Shangdong province, another venture, Fuku Sunghoon China Machinery Manufacturing Co. Ltd., makes equipment for recycling, molding, cutting and adding fire retardants to expanded polystyrene foam.

“Because we started out as a trading company, we've always had the mentality that we could be flexible,” Udo Wong says.

He ticks off other challenges facing the industry: “The drop in oil prices puts price pressure on our stuff.

On the other hand, going green can be a selling point. Big companies like Canon and Nikon that have embraced “CSR” — industry shorthand for “corporate social responsibility” — want recycled plastics to blend with new materials.

Clearly believing China's tighter environmental regulations are here to stay, Fukutomi is already at work on a bigger, 860,000-square-foot plant at Tseung Kwan O, also in the New Territories, that will start production next year.

“We definitely think we have the right strategy,” says Udo Wong.