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China’s scrap ban roils U.S. recycling markets, and that could be a good thing

David Kuhnen, general manager of Recycling Industries in Sacramento, Calif., surveys a pile of scrap paper and other recycled material destined for China on Oct. 20, 2009. China this year has restricted imports of U.S. mixed paper and plastics, which are upsetting recycling markets but creating new opportunities.
David Kuhnen, general manager of Recycling Industries in Sacramento, Calif., surveys a pile of scrap paper and other recycled material destined for China on Oct. 20, 2009. China this year has restricted imports of U.S. mixed paper and plastics, which are upsetting recycling markets but creating new opportunities. jvillegas@sacbee.com

Remember when American consumers griped about the quality of Chinese goods? Now it’s China’s turn. Beijing is fed up with the quality of a key U.S. export — scrap paper and plastics — and it is flexing its market muscle to do something about it.

By the start of next year, China is expected to ban imports of 24 types of recycled materials, including mixed paper and various plastics. Beijing notified the World Trade Organization about the ban in July, an announcement that has shaken up world recycling markets and triggered fears of leftover scrap being dumped in U.S. landfills.

But there may be an upside to the import ban, which Beijing has dubbed “China National Sword 2017.” It could prompt U.S. consumers to be more careful about what they discard in recycling bins, reducing the “contamination” that is triggering China’s ire. It also could benefit some U.S. companies by providing them with a new, low-cost supply of scrap paper, which can be used domestically to make cardboard and other products.

“This is a good wake-up call,” said Mark Murray, executive director of Californians Against Waste, a nonprofit that championed many of the state’s recycling programs. “We should have been investing in utilizing this material domestically from the get-go.”

Brent Bell, vice president for recycling for Waste Management Inc., the nation’s largest waste hauler and recycler, said that China’s ban has hurt the company’s recycling revenues and forced it to seek alternative markets. WMI collects and sells 10 million tons of recycled items yearly, with about 30 percent of that going to China, he said.

But while export recyclers will suffer, some U.S. paper mills will benefit from the ban, Bell said. One of these is Georgia-based Pratt Industries, one of several U.S. companies that uses leftover paper as pulp for the making of cardboard and other products.

“Some of these mills lost a lot of business to China,” said Bell. “Some of them will now regain market share and get some of that back.”

Although few U.S. consumers may realize it, China has long been the world’s largest purchaser of materials they drop in recycling bins. The Chinese countryside is dotted with villages and businesses dedicated to separating plastics, paper, electronic waste and textiles, and then sending that material to factories for reprocessing.

Last year, the United States sent more than $5.2 billion worth of scrap to China, according to the Institute for Scrap Recycling Industries. Much of that was valuable mixed paper — such as used office paper, envelopes and junk mail. Chinese companies use that paper as pulp to make cardboard, some of which returns to the United States as packaging for televisions, iPhones and other Chinese-assembled products.

Yet for the last decade, Chinese inspectors have regularly opened cargo containers to find unacceptable U.S. exports of scrap. Shipments have included rotting garbage, or worse, hazardous materials such as propane canisters. “Clearly they are fed up with us dumping our junk on them,” said Jock O’Connell, a trade economist based in Sacramento.

The Chinese government is also trying to transform the country’s ad-hoc system of trash collection and recovery into a coordinated system, said Joshua Goldstein, a University of Southern California history professor and expert on China’s recycling industries. “The entire waste management sector is going through a sea change,” he said.

In addition, China’s recycling enterprises have been the focus of unflattering international attention, including Wang Jiuliang’s “Plastic China,” a documentary that went viral by revealing how foreign plastics end up in the country. “There is some sense that folks high up in the (Chinese) government have seen this and are disturbed by it,” Goldstein said.

Arguably, the cross-Pacific trade in scrap material has been beneficial for both countries. It blossomed because of China’s cheap labor and ingenuity, but also because of favorable shipping costs, O’Connell noted. As the trade deficit between the two countries widened, cargo ships carrying Chinese goods were returning to China empty, prompting the shipping industry to offer discounts on the “return haul.”

U.S. recycling brokers benefited from these discounts by loading American scrap onto what otherwise would be empty ships.

With China’s announcement in July to ban on U.S. scrap imports, those shipments are dropping. In September, exports of scrap paper from West Coast ports fell 17 percent, compared to the same month in 2016, according to O’Connell, citing U.S. Census Bureau trade data.

Prices have declined even more for U.S. recyclers trying to market the mixed paper. In October, mixed paper in the Southwest, which includes California, fetched a price of at least $20 a ton, compared to $80 a ton in July, according to RecyclingMarkets.net.

Although the China import ban doesn’t officially take affect until January, Waste Management Inc. decided in July to immediately look for alternate buyers for mixed paper, Bell said. By September, China had stopped renewing licenses for Chinese companies that previously imported mixed paper from abroad, further depressing markets.

Recycling programs in western states are disproportionately feeling the national ripple effect. That’s because states such as California, Oregon and Washington have a high recovery rate for recyclables, and in the past benefited from their proximity to China.

According to the Washington Department of Ecology, China’s import ban will likely have “significant” impacts. “In the short term, more potentially recyclable materials are likely to go to the landfill because no market is available for them,” the department said in statement.

China’s ban includes restrictions on a range of plastics, including high-grade PET used in water bottles and other drink containers. The West Coast is well-positioned to manage this new source of supply, since it is home to several plants that recycle PET, including one touted as the world’s largest, in Riverside, California.

But the ban also applies to lower-grade plastics — those marked numbers 3 through 7 on the bottom of restaurant take-out boxes, clam-shells and other containers. There is little domestic processing for these so-called “3-7 plastics,” which could end up being dumped or warehoused until markets perk up.

An estimated 40,000 U.S. workers have a stake in the scrap export trade, and business has been rough the past three years. Since 2013, some 800 recycling centers in California have been shuttered because of depressed prices and the state Legislature’s refusal to renew subsidies.

Within the shipping and recycling industries, there is internal debate on whether Beijing is serious or merely applying pressure to clean up U.S. scrap exports. “This might be a shot across the bow,” said O’Connell, noting that a full export ban would deprive China of raw materials to make cardboard and other products.

Bell, the Waste Management vice president, isn’t so sure. Chinese leaders seem determined to crack down on contamination. Regardless, “This is an issue we will have whether the material goes to Vietnam, or India or even to Louisiana,” he added.

Murray agrees. People will now need to be more careful than ever about what they buy at the store and put in the bin, he said. “As consumers, we need to take greater responsibility in identifying what is truly recyclable.”

Stuart Leavenworth: 202-383-6070, @sleavenworth

China balks at recyclables

Scrap paper exports to China from California ports have been dropping, with an increase of decline since Beijing announced restrictions in July on imports of U.S. recycled items. In thousands of metric tons.

Month......2016........2017

Sept.......... 497,732.....414,108

Aug.......... 540,806.... 481,132

July...........556,697.....488,134

Source: U.S. Census Bureau, Foreign Trade Division

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