Quarterly Report – July 2019

The export market continues to experience changing factors. China’s Ministry of Ecology and Environment (MEE) has released a reduced number of import licences, bringing the total to 8.2 million tonnes up to July 2019 (44% of the 2018 figure). It is believed that licences covering only 12 million tonnes will be issued for the current year as a whole; if so, this would represent a 39% reduction compared to 2018. Therefore, it is clear that China is continuing to strive towards a 100% ban on waste imports, with the forecast for 2020 at just 6 million tonnes.

The focus of late has been on the Indonesian market as customs officials have set out new import restrictions around recycled paper. After much uncertainty, it has been revealed the allowance for prohibitive material is 2% with an outthrow allowance of 3%. The inspection regime is expected to remain similar to that of China, with 100% inspections and 2% bale breaks. Indonesian customs are now set to follow the Institute of Scrap Recycling Industries’ specifications, which are currently used throughout the USA.

The disruption caused by the uncertainty surrounding these guidelines has made UK producers cautious of selling their material into this market, with the knock-on effect being that it has flooded the Indian and European markets with material. The USA took a similar approach and also diverted their material elsewhere until the official announcement was made. This put heavy pressure on prices, which fell as a result.

With volume being key to carries in the coming months as well as in the long term, and with Asian volumes at risk owing to the changes in China, it will be very interesting to see how the shipping lines manage the pending IMO (International Maritime Organization) 2020 global sulphur limit surcharge. All shipping lines have incurred high costs in ensuring they meet the new standards and their intention will be to pass on these costs to the shippers.

The European market has been similarly affected as shipping rates from the USA into Europe are currently low, and people can take advantage by purchasing brown grades at a fraction of the price.

The UK and Europe have also started to feel the effect in terms of price on certain middle grades. The Indian price for multigrade has fallen and UK and European mills are now following suit. We strongly believe this is due to recent confirmation of the closure of the Georgia-Pacific mill in the USA which was a large consumer of tissue grades - a development that looks set to rebalance the market for this stream. The closure has led to the USA looking to India for offtake. With the influx of material, India was able to drop its purchase price, resulting in downward pricing for other countries.

As always in a downward pricing market, the key is to keep material moving and the relationships strong. A continued focus around quality is needed as higher quality will always be more attractive to the offtakers.