Many of the major economies have adopted measures to prevent further spread of the COVID-19 virus, including lockdowns and suspension of economic activities. Around the world, this has severely affected manufacturing industries and the use of raw materials, with dramatic effects on the plastics recycling industry.
The extended city lockdowns in many of Asia’s main recycling countries such as Malaysia, Vietnam and India, along with social distancing restrictions, have resulted in only 30% of recyclers continuing to operate and, in general, at only 50% of their processing capacities. As a result, a number of recyclers have been placed in financial distress as they are unable to meet the commitments of paying wages, rent and suppliers, or of clearing goods that have arrived at the ports.
To make matters worse, the scaling-down of shipping companies’ operations has led to insufficient container forwarding capacities, longer transit times owing to blank sailings and dramatic increases in freight rates. With transportation costs climbing and the flow of goods slowing, the global plastic scrap trade is now facing a very difficult time.
The oil price nosedived as low as negative US$ 38 per barrel, thereby driving down prime material prices and causing a disastrous slump in recycled plastic values. In the absence of normal market liquidity, buyers have lost interest in purchasing material and remain on the sidelines.
City lockdowns and suspension of factory operations have reduced supplies of industrial scrap, and the shortfall cannot be covered by other sources. In fact, the fear that the COVID-19 virus can live on solid materials for significant periods has scared away upstream waste sorting operations and severely affected MRP supplies.
The decline in plastic scrap supplies is not a short-term phenomenon but will persist given the global consensus to reduce and restrict the use of plastics. On the other hand, use of recycled content in products or packaging may become a global policy as directed by the United Nations. The price correlation between prime materials and recycled materials may be distanced in the future, depending on supply and demand.
As the trend towards using more recycled content prevails, recyclers who are able to meet the quality specifications of brand owners in product applications are going to be more successful. However, the current range of qualifying scraps demanded by brand owners is not wide enough and many recyclers are finding it difficult to satisfy their needs, leaving a long-term technical issue for our industry which will need to be resolved by R&D and the development of more recyclables that can meet brand owners’ desired standards. This is undoubtedly our long-term direction.
While China has gradually lifted the city lockdowns and factories are resuming production, prime material prices for PP and certain styrenics have increased by between US$ 30 and US$ 80 per ton within the last two weeks. Furthermore, resuming factory operations may be helpful in the collection of receivables by recyclers.
Nevertheless, the light at the end of the tunnel is yet to be seen as lockdowns in China’s export markets are still in effect owing to COVID-19.
Fukutomi Co Ltd (CHN), Executive President of the China Scrap Plastics Association, Board Member of the BIR Plastics Committee