Why is the recycling industry facing turmoil and increased financial stress?

Plastic recycling

The global waste industry has been thrown into turmoil as China has implemented its threat to halt import on almost all categories of plastic and poor-quality cardboard and paper.

The ban on imports of millions of tonnes of plastic waste is already causing a build-up of rubbish at UK recycling plants and those operating, in what is a commodity market, face chaos and financial stress in the short-term – this is according to the restructuring advisory practice of Duff & Phelps.

China was the world’s biggest processor of recyclable materials. However, in July 2017, its government told the World Trade Organisation that it intended to halt the import of 24 grades of plastic, textiles and paper, saying the items were often contaminated with dirty or hazardous material.

Plastics, including PVC and polyethylene, were also covered by the ban, along with mixed batches of paper and cardboard.

Geoff Bouchier, managing director at Duff & Phelps, stated: “The UK, which has little capacity to recycle plastic, has been trying to locate newer markets since the possibility emerged that China might shut its door.

“In the absence of alternatives, those operating in a commodity market will face chaos in the short-term, creating a huge strain on financial resources, with cashflow being particularly badly hit in many cases.

“This has come at a bad time for the sector, which has reported tight margins for a number of years compounded by cuts in central government funds to local authority environmental services budgets and a global fall in commodity prices on recycled materials.

“The UK recycling industry has already admitted that a build-up of waste is inevitable, which may lead to much of the material going to landfill or incineration, adding to bottom-line pressures due to the cost of Landfill Taxes and the like.”

China’s dominance in manufacturing means that for years it has been the world’s largest importer of recyclable materials. In 2016, it imported 7.3 million tonnes of waste plastics from developed countries including the UK, the U.S. and Japan.

According to Greenpeace, since 2012, British companies alone have shipped more than 2.7 tonnes of plastic waste to China and Hong Kong – more than two-thirds of the UK’s total waste plastic exports.

Geoff continued: “The UK won’t be alone in experiencing considerable disruption, with the Bureau of International Recycling China estimating that China imported 7.3 million tonnes of plastic scrap and 27 million tonnes of waste paper from Europe, Japan and the U.S. in 2016.”

“For many leading companies, the restrictions imposed by China have moved them to seek out new markets to send recyclable waste materials to, including Vietnam, Indonesia, Malaysia and Thailand, among others.

“However, other regions globally are also targeting these markets, which will mean that UK recycling businesses will need to do much more to ensure improvements in quality so that they become preferred suppliers.  But that takes time and investment in a period when the industry is in short supply of both.”

Geoff concluded: “Waste management and re-processing businesses are facing three distinct challenges – the speed at which their core market evaporated, global competition for new markets and the costs of having to store and sort waste, which is increasing daily.

“Local recycling units are now dealing with the very real issue of increasing costs as they strive to sift and sort here in the UK before shipping to new markets already swamped since the closure of the Chinese market.

“Our UK Restructuring Advisory team is uniquely positioned to advise organisations in a variety of distressed and special situations. Our team has sector experts, recruited from the industry and with real experience, and we understand the challenges being faced.

“We would urge those waste management companies facing tougher trading conditions to contact us to steer a route through to better times.”

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