The market for recyclables has mostly moved sideways with the exception of MIX paper which has declined significantly. Let’s talk about MIX pricing first as this is a case of a classic demand shift.
Earlier this year the Chinese announced that they would no longer purchase MIX paper as of Jan 2018. The announcement alone dropped the price for MIX. Economists call this the “expectation effect”. This occurs when expectations for the future influence behavior in the present.
The demand shift (to the left or lower) occurred in December because with ocean transit time factored in, any shipment in December will arrive in January 2018 or later. Obviously, when a market loses it largest buyer in a market with a fixed supply (the supply curve for ResMix is vertical), price will drop significantly as was the case in December for MIX.
The good news is there was very little change in ONP and OCC, which given the normal season patterns for these grades, is a clear indication of both export and domestic demand. The troubling news for paper is that the Chinese government still has not issued any import license renewals.
Plastic pricing has also been impacted by the Chinese announcement that they will no longer purchase scrap plastic of any type. Prior to this announcement, China was a significant buyer for PET. Without their purchase demand, (demand shift to the left) the price for PET has declined by over 55% in just the past few months.
Looking forward there are two major possibilities. The first assumes the Chinese Government will quickly issue import license renewals. When this occurs, demand should increase as mills replenish their inventories. Pricing will increase with the shift in demand. The second possibility assumes licenses are not issued in a timely manner, in which case, pricing will likely move lower. Only time will tell which scenario prevails although Pioneer is optimistic that the government will issue the licenses shortly as the longer they delay, the greeter will be the pressure from their own paper companies to get it done.
As we approach the Holidays and inevitably assess the past year, it’s clear we have been dealing with an extraordinary disruption in pricing and movement thanks to the Chinese. In short, it’s been a tough year. Through it all we have remained thankful for your business. We will never forget that our business is serving you.
PS. Pioneer will be closed both on Christmas Day and New Year’s Day so our team members can enjoy the Holidays with their families. We will be open on both Saturday Dec 30 and Saturday Jan 6 to help meet your delivery needs. We will be working our normal hours on both Friday Dec 22 and Dec 29.