A new Chinese policy that could significantly tighten standards and cut imports of recycled resin pellets to China is causing uncertainty in the market and may force Chinese manufacturers to switch to domestic or virgin materials, according to a Chinese recycling association.
Steve Wong, executive president of the Beijing-based China Scrap Plastic Association, said in a recent market update that the new policy, which takes effect in April, is "clouding the market" and could be difficult to comply with.
"A real threat felt by the industry is how soon the directive will become a mandatory rule that requires strict compliance," Wong said. "It has been suggested that the requirements may switch the import of recycled pellets to domestic recycled pellets and prime materials."
China's 2018 National Sword policy that sharply limited imports of scrap plastic and paper caused some Chinese recycling companies to switch business models.
Instead of making recycled pellets or flake in China from imported materials, they've invested in factories in other countries, including Southeast Asia and the United States, to make plastic scrap into pellets and export those pellets to China.
But the new policy suggests more hurdles for firms following that path, said Wong, who is also CEO of Hong Kong-based Fukutomi Recycling Ltd. and a member of the plastics committee of the Brussels-based trade association the Bureau of International Recycling.
"The new standard requires that all recycled pellets under the same shipment must have a consistent melt-flow index, impact strength, elongation at break and others of less than 3-5 percent quality differences," Wong said. "This will not be easy to comply with."
In the Dec. 20 statement from CSPA, he said recycled resin prices have also been taking a hit, as overcapacity in the virgin materials sector and reduction in demand from cutbacks in single-use plastics "drives prime materials prices down to … a historical low."
"A ripple effect has dragged down the recycled material prices for a considerable amount of time, without any sign of rebound," Wong said. "Nevertheless, the low price does not attract any buying interest due to a bearish sentiment looming amid the uncertainties raised by the trade war between China and [the] U.S."
He also said there's a "severe" overcapacity in the recycling industry in Southeast Asia, as restrictions on imported scrap in those countries, following what China's government did, are putting the plastics recycling sector in a bind there.
Many Chinese recycling companies initially set up operations in Southeast Asia after Beijing adopted its restrictions.
"Most recyclers in the area have managed to keep their factories running, though at loss-making condition," Wong said. "However, it seems they may not be able to continue to survive with the calamitous challenges."
"Only a small portion of these processing facilities have adequate imported scraps to maintain a normal operation, while the rest are not in operation full time due to policy constraints of plastic scraps from imported sources," he said. "On the other hand, the import cost is quite high."
He said Thailand, for example, has capped imports and is not likely to increase what it allows in. He estimated there are 25,000 recycling factories in Southeast Asia with production capacity of 7.5 million tons per month.
The difficulties for recycling companies means that consumer product companies that have pledged to use recycled plastic could face difficulties sourcing enough material, he said.
"The market mismatches have cast doubts on brand-owners ability to fulfill their commitments on the use of recycled contents for their products given that product making factories have moved to countries where plastic scrap imports are facing policy restrictions," Wong said.