Originally published as part of the August-October 2020 Recovered resources market bulletin
From the start of 2021, China will cease receiving any recyclable materials from other countries, including Australia.
As the focus has been mainly on Australia’s own export bans, the pre-emption of the Chinese bans has slipped by for many. It is certainly true that other countries will still be receiving recyclable materials, but what was the main market just a few years ago, will shortly be no market at all.
But as the Chinese ban will come before any of Australia’s recyclable materials export bans are implemented means there are unique challenges that will arise – and are already being observed – for the local supply chain.
First, the end of the China market is no small thing. As an example, just seven years ago, Australia’s exports of recovered paper to China peaked at 1.15 million tonnes. Over the year ended June 2020, those exports had crashed to just 0.22 million tonnes. As is therefore already occurring, exporters must find other markets. In 2013, China accounted for 75% of Australia’s recovered paper exports. By 2020, that had fallen to just 21%.
Second, and related, all other countries must also find alternative markets. According to the Food and Agriculture Organization of the United Nations (UN FAO), in calendar year 2019, China imported 11.83 million tonnes of recovered paper. Australia’s share was less than 2%, meaning local exporters face huge competition from a range of other countries, for supply into markets other than China.
Of course, most other markets are receiving all the recovered fibre they currently need – they buy and use what they need, not more nor less. In general, the Chinese bans do not mean there will be incremental growth in demand from other countries. However, Chinese producers have been establishing processing facilities for fibre and plastics in other countries, including in the source countries of the recovered materials. That does provide opportunities for exporters to ship to an intermediate country where some level of acceptable transformation occurs, prior to the resources being shipped to China for final manufacturing.
This is an important consideration, because it points to a potential future. China is not banning the importation of most value-added raw resources, including those made from recycled materials. The bans apply only to unprocessed scrap materials. So, for example, recovered paper pulp and recycled PET pellets will still be imported into China. The challenge for exporting nations is to prepare their resources ready for the future market.
Ultimately, the Chinese import bans mean international conditions will be more difficult for exporters of all recyclables – the biggest impacts will be on paper & paperboard and on plastics. Indeed, all the reports are that the challenges are already being confronted, including because major shipping lines are withdrawing outright offers of scrap transport into the fast-declining Chinese market.
Domestic markets will also be disrupted by the Chinese importation bans, but that may not all be bad news.
Regardless of source, but dramatically for kerbside volumes, the Chinese import bans are likely to accelerate the intensification of local market competition for the available volumes. With a major export market curtailed, more supply will be offered onto the domestic market. Local reprocessors will have the pick of the material, marginally improving the economics and supply to the local market.
That is no bad thing, but it could mean the residual material is lower quality and therefore harder to export. With prices already low for many materials, that could result in more material that is unable to be exported at all.
While on the face of it, more lower quality material stuck locally is not a good thing, what it may lead to is even more attention on the opportunities to invest in new reprocessing capacity in Australia.