National Sword may create new trade route for plastics beyond China

Shanghai — At China’s twice-annual Replas convention, plastics recyclers reflected on the massive global shifts caused by Beijing’s National Sword campaign.

New limits announced April 19 on imports of post-industrial waste were seen by some as another nail in the coffin for China’s once-thriving scrap plastics importing business.

But what also emerged, amid the teeth gnashing, was a picture of an industry adapting.

“Environmental awareness is coming to China,” said Khadem Mahmud Yusuf, a PET scrap reprocessor from Bangladesh.

At the same time, countries that were exporting scrap to China will increasingly have to deal with the problem themselves. “I think this is a very good thing,” he said.

While the industry is still reorganizing in the wake of Beijing’s ban, attendees at the conference said they recognized change, likely for the better, has come to the global recycling trade.

Some recyclers outside China are seeing strength in a new business model: shipping recycled pellets to Chinese factories.

“With the approved quantity [of imports] a fraction of what it used to be, it makes no sense to run a plastics recycling factory here,” said Steve Wong, executive president of the Beijing-based China Scrap Plastics Association, which runs the Replas conference. Wong did not attend Replas but spoke to Plastics News.

The numbers show the drastic changes from National Sword. Wang Bingli, director of China polyolefins at IHS Markit, noted in a speech at Replas that exports of scrap plastic from the European Union to China have dropped almost 40 percent and to Hong Kong 50 percent.

From the United States to China, the drop has been almost 29 percent, and to Hong Kong 43 percent.

China is going from importing scrap from the United States, Europe and Japan to importing recycled pellets from those places, plus Southeast Asia.

A good number of Chinese scrap plastics recyclers at the event, held April 21-22 in Shanghai, said they saw the writing on the wall and have already set up shop in Southeast Asia, where they said restrictions aren’t so tight.

Those that made the move earlier said they have a head start. Huang Hui Jing of Dalongkai Technology Co. moved to Malaysia from China years ago.

“Just this past half year a lot of Chinese have moved their factories to Malaysia,” he says. “Business is good.”

The IHS Markit data showed that exports of scrap PET to Malaysia more than doubled compared to the previous year. Malaysia is then exporting PET pellets around the world but mostly to China. The same trend can be seen with Thailand and Vietnam.

“Business is good for us,” agreed Zhang Tao, of Malaysia-based Tanjung Majujaya Sdn. Bhd., a supplier of polyethylene pellets for pipe, film, waterproof materials and foam. He sources his scrap domestically in Malaysia.

“Since China can’t import scrap, they buy pellets from us and our business has improved,” he said.

Yusuf, who spoke during international presentations at Replas, says he’s experiencing an unexpected boon to his business from the ban.

Up until now he was selling to mostly domestic companies, as Chinese companies didn’t know much about sourcing recycled pellets in Bangladesh, said Yusuf, who is CEO of recycling firm Bangladesh Petrochemical Co. Ltd. But the Chinese government’s mid-2017 ban has changed the outlook.

“Now I’m getting a lot of Chinese orders. We need to quickly ramp up, so we can balance our domestic and China markets,” he said. “I got my first Chinese client in February of this year. Now I have four.”

Interest at the convention exceeded expectations, he said.

“Yesterday we arrived at 9 a.m. to set up our booth and all of a sudden we were surrounded by people wanting my business card and samples,” he said. “I was so confused. I didn’t expect that.”

Some at Replas noted difficulties in sourcing recycled pellets from inside China, and a preference among Chinese manufacturing plants for imported materials.

Chandramouli Venkatesan, sustainability manager with infant car seat manufacturer Cybex, came to Replas looking for domestic Chinese scrap plastic processors.

“I’m looking for domestic scrap [polypropylene] PP, but I’m getting no response,” he said.

IHS Markit’s Wang also noted a lack of focus on domestic processing.

“The converters are saying they’d rather use recycled pellets that are imported, rather than domestic,” he said. “Even if they must pay more. Quality is not stable batch by batch. This is a problem.”

Solving this problem will require significant resources, he said.

“First of all, the Chinese government needs to give national education [to the public] on how to sort waste,” Wang said. “They need to also invest in this domestic scrap recycling industry. Only after this will the industry develop well.”

He estimates it could five years for the domestic recycling industry to develop.

Some industry insiders also wondered whether the current migration of scrap plastic processing to Southeast Asia will prove to be permanent, and are looking to other markets, including the United States, to set up operations.

Maria Qian, president of One Stop Recycling Services LLC in Austell, Ga., and a 20-year industry veteran, sees lots of opportunities with China’s ban.

“Most of my clients moved to Southeast Asia, but I can see a trend of more Chinese companies interested in investing in the U.S.,” she said.

But she cautions that setting up scrap processing operations in the United States can be a hard road for Chinese companies, particularly smaller ones.

“Small or medium-sized companies are too little and there are too many cultural challenges, like getting the visas and the language barrier,” she said. “But sizeable companies are really scared and are more conservative.”

She mentioned a Dongguan company she knows that is seriously considering moving reprocessing to the United States: “They don’t think Southeast Asia will last long and the U.S. is a big source of scrap plastics.”

But several attendees pointed to the challenges ahead for the United States if it is to begin reprocessing its own scrap plastics, including a lack of a self-sorting culture. That will challenge recycling companies, which can’t afford the labor costs that handpicking would require in the United States, they said.

Yusuf said the automated systems that U.S. recyclers use are still not as good as human sorters. He suggested effort be put into developing better automated solutions.