The market for paper recyclables has moved up in November. The movement has been strong enough to improve the value of ResMix in spite of selected price declines in the plastic grades.
To begin this month’s analysis, I must admit that I was not expecting to see a price increase in November given what we knew about China’s stated intentions in early October. Despite my initial surprise, it turns out that the root causes of this increase were both predictable and logical. Please let me explain.
The “backdrop” for this increase is the continued and very steady growth of all of the major world economies. Demand for packaging materials has been and continues to be robust throughout our world economy. Now add the reduced purchase volume of recyclables by China beginning in April of this year. This gives us a situation of increasing demand with decreasing delivered supply which can only be supported temporally with a reduction in inventories. After six months of reduced purchases, most of the mill inventories, as well as the pipeline inventories for the major consuming mills, have been depleted. In short, the “cupboard is bare.”
In November, without sufficient inventories, mill buyers dramatically increased their buying from a smaller pool of MRF suppliers as not all MRF’s have qualified to continue shipping to China. Obviously, higher demand with lower supply can only raise prices as has been the case in November.
Looking forward, China announced just today (Nov 9th) that they are relaxing their quality standard to contaminants of 1% (vs. the original standard of .3%). Additionally, they will not allow small mills under 300K Tons per Year to import recyclables. Lastly, they stated that only mill buyers can trade recyclables. Brokers will be prevented from doing so beginning in 2018. While not addressed in their communication today, we do expect them to begin renewing import licenses for larger mills shortly.
The communication of Nov 9th and the changes announced have left us less pessimistic about a major order disruption in early December. In fact, if the licenses for large mills are renewed shortly, as we hope, orders and pricing could actually improve further in December.
It should be noted that even at 1% allowable contamination, all MRF’s will be hard pressed to make this standard. MRF’s will still have to run slower with more sorters than before. Please help us achieve this quality by, at every opportunity, asking your customers to include only program items in their collection container. Thank you for your attention to this matter.