Corrected: INSIGHT: Controls and availability hit China recycled plastics use

13 January 2010 16:18  [Source: ICIS news]

Correction: The Insight article headlined: "Controls and availability hit China recycled plastics use", dated 29 December 2009, included an outdated version of demand growth estimates for virgin polymers in China. Please read in the fourth paragraph... "CBI data indicate that consumption of virgin resins ... are on track to record year-on-year consumption increases of 20% for 2009" ... instead of ... "are on track to record year-on-year consumption increases of 9% for 2009".... A corrected story follows.

By Becky Zhang

SHANGHAI (ICIS news)--China’s consumption of recycled plastics continued to grow in 2009, although at a markedly slower pace than in recent years, CBI analysts concluded from a just-completed study.

The 20 reprocessors in CBI’s sample posted only a 5% increase in volume in 2009.  This sample, a representative cross-section of the Chinese industry across scale, technological, and geographic lines, was surveyed in both January and December 2009.

The 5% increase in 2009 contrasts with the 8% recorded for the sample in 2008, when China’s consumption of recycled plastics reached 16m tonnes, despite the market contraction in the second half of the year.

This raises the question of why the much publicised, comparatively robust domestic economy in China failed to generate comparable growth in the country’s consumption of recycled plastics this year. CBI data indicate that consumption of virgin resins, including polyethylene (PE), polypropylene (PP), polystyrene (PS), acrylonitrile butadiene styrene (ABS), and polyvinyl chloride (PVC), are on track to record year-on-year consumption increases of 20% for 2009.

China plastics consumption 2007-2009

‘000 tonnes
Virgin plastics	2007	2008	2009*
Polyethylene (PE)	11,600	11,580	14,721
Polypropylene (PP)	10,665	10,531	13,051
Polyvinyl chloride (PVC)	10,404	9,354	10,397
Acrylonitrile butadiene styrene (ABS)	3,632	3,219	3,775
Polystyrene (PS)	2,495	2,378	2,605
Total consumption of virgin plastics	38,796	37,062	44,549
Consumption growth rate	10%	-4%	20%
*expected

Source: CBI data

China imported 7,075,000 tonnes of recycled plastics in 2008, up 2.4% over 2007. This represented a substantial decline from the 20.8% compound average growth rate (CAGR) recorded in the 2001-2007 period. For 2009, however, estimated import data imply a maximum volume of 6,950,000 tonnes, down 2% over 2008.

This estimate assumes that the unpublished November and December import numbers will mirror October’s volume. Historically, recycled plastic imports during the last two months of the year do not normally exceed October’s level.

Imports generally account for greater than 40% of China’s total recycled plastic consumption and thus play an important role in the industry’s supply chain.

Declines in the availability of recycled plastics from developed countries following the financial crisis have resulted in a tight supply situation, said Ma Zhanfeng, Secretary General of the Plastics Recycling Committee of China’s Plastic Processing Industry Association.

China’s implementation of stricter import regulations for recycled plastics has further constricted imports of overseas material, Ma added.

China’s General Administration of Customs has designated Guangdong and Shanghai in April and October, respectively, as pilot regions to test the new “Classified Customs Clearance” programme with the aim of strengthening inspection of imports.

“The new policy slowed customs clearance and created additional costs from tariffs, storage, and freight,” reflected one recycled plastics dealer.

Guangdong, China’s largest recycled plastics trading and processing hub, accounts for half of the country’s recycled plastic import volume in 2009. Implementation of the new customs clearance programme precipitated 16%-24% import volume contractions from May to June this year.

“Over the long run, the government will continue to implement tight import control policies to promote further increases in the domestic plastic recycling ration, to help protect the environment in China, and to inhibit the inflow of substandard material from overseas,” Ma stressed.

A partial realisation of these goals may be reflected in domestic data. China’s supply of domestically recycled material is poised to record a 10%-12% year-on-year increase for 2009.  “However, further growth is hindered by the lack of a well-established waste collection and classification system [for plastics] in China,” said Ma.

“It is easy to source domestic material (recycled plastics). But quality problems, such as mixed plastic types, high impurity content, and other inconsistencies have deterred us from buying. We have to put more effort into the screening and sorting processes, which ends up costing us a lot more than imports,” said a reprocessor in Guangdong.

China’s demand for recycled plastics remains robust, owing to continued growth in demand for plastic products as well as to the widening price gap between virgin and recycled material. Depending on product type and grade, recycled plastics normally sell for 30%-60% less than virgin material, according to several of the reprocessors surveyed.

CBI data prices quotes yuan (CNY) 10,600-10,750/tonne ($1,552-$1,574/tonne) ex-warehouse for blow-moulding grade high density polyethylene (HDPE) in South China in mid-December, 2009.

Reprocessed HDPE pellets, by contrast, were sold for CNY6,400-8,100/tonne ex-warehouse in South China for the same period, or a discount of 32% over virgin polymer.

“The price of recycled material tracks that of virgin material. A CNY2,000-3,000 price gap is necessary to attract the buying interest of end-users,” said Ms Zhu, the manager of Laizhou Huasheng Plastics Industry Company, a Shandong reprocessor that sells re-compounded pellets to agricultural film and cable makers.

Recycled plastic utilisation ratios are also constrained by reprocessing technologies and facilities, most reprocessors in the sample reflected.

“We will increase the ratio of recycled material in our mixture if the price difference widens to over 50%. However, 70%-80% would be the maximum level for us to meet client needs with our production facility,” said Mr Yu, the purchasing manager of Zibo Intco Framing Products Company, which produces plastic wire rod for furniture. 

“The average mixture level industry-wide should be only about 50%-60%,” Yu added.

Demand for recycled plastics naturally correlates with downstream application growth.

Seventy percent of recycled plastics in China are processed into pellets, which are then used to produce non-food packaging films, agricultural films, plastic containers, home appliance casings, pipes, furniture, and stuffing for toys, to name just a few.

Applications relating to infrastructure and housing construction show the strongest growth in demand at present, thanks to the Chinese government’s stimulus spending this year.

Ms Lin, of the Guangdong Gaoyao Huayue Plastic Products Company, revealed that their production of re-compounded pellets doubled year-on-year in 2009 due to increased downstream demand, particularly from the pipe industry.

By contrast, producers of stuffed toys, which use polyester from recycled (PET) bottles to make filling material, indicated that they have faced challenges this year owing to reduced export demand.

China’s State Environmental Protection Administration (SEPA), however, has given these companies a ray of hope. SEPA announced in November that the government plans to repeal regulations banning the import of whole PET bottles.

“This will definitely be beneficial for the industry by partially reducing raw material costs to reprocessors,” Ma commented. 

China consumes more than half of the US's output of PET from recycled bottles, but current regulations only permit the import of reprocessed PET pellets or flakes.

China hopes to leverage its status as the world’s largest consumer of recycled plastics to reduce its carbon footprint. 

Recycling 1,000 tonnes of plastic saves up to 5,000 tonnes of crude oil and 3,750 tonnes of carbon dioxide emissions. This requires the rapid development of a more structured and integrated recycling industry in China.

($1 = CNY6.83)

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By: Becky Zhang
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