The value of Residential Mix has improved for August primarily due to a modest increase in paper pricing. Paper demand is very strong currently in the eastern half of our country and the Westcoast mills have responded to this. This improvement may be short lived as seasonal factors are likely to assert themselves soon.
The real story this month is twofold. First, three major announcements of new mill capacity, and second, a lack of orders for #3-7 Plastic.
Beginning with the mill announcements, Lee Mein Paper, Sun Paper and Nine Dragons, all large Chinese paper companies, announced this month major capacity expansions in Vietnam and Laos. Lee Mein’s Board approved an investment of 650 million dollars to install a new paper machine at an existing facility in Vietnam. Nine Dragons, the largest Chinese paper company, announced they would build an entirely new paper mill in Vietnam. Finally, Sun Paper announced a major expansion at their existing facility in Laos.
These announcements are the most convincing evidence yet that the global free market is responding to the unmet demand for packaging paper in China created by the actions of the Chinese government. This is exactly what we have been hoping for and predicting for the past six months. These mills will add to the demand and the pricing for recovered paper by purchasing recovered paper and producing finished rolls for shipment to Chinese packaging companies. This development and others like it will gradually improve recyclable pricing to much better levels than we are dealing with today. Outstanding!
Moving to the lack of orders for #3-7, I want to begin with a quick review. Specifically, it’s important to understand that most of this grade is made of items which are not program materials. Only dairy tubs (butter, yogurt, cottage cheese, etc.) are a program material in this catchall grade. Additionally, this grade represents only about 1-2% of the total residential stream.
If you will remember, a year ago the Chinese announced they would no longer accept scrap plastic including #3-7. In response, the processors of this grade quickly set up shop in Vietnam and American MRF’s continued to find movement of the grade albeit at negative values. Three months ago, Vietnam made the same closure announcement and processing moved to Malaysia. Just this past week, Malaysia announced that they would no longer take this material as well.
At this point, it’s clear that the days of shipping this grade overseas are numbered if not over. We have no orders for #3-7 and do not expect to get any for the foreseeable future. If we are forced to landfill the non-program items in #3-7, the good news is that no impact to overall pricing is expected as the cost to landfill the non-program items is about the same as our last order price for this grade.
In closing, I can’t emphasize enough how significant the new Chinese paper production in Vietnam and Laos announcements are for the future of demand and the pricing for recovered paper. They are the strongest indication yet that free market responses will lead us out of the terrible market pricing environment we are all dealing with currently.
Lastly, please know that Pioneer Recycling is working each and every day of each and every month to find the very best pricing available in the marketplace for recyclables. Please also know that we very much appreciate your business.