Plastic Scrap Market Analysis
Most Chinese businesses want to jump on the US bandwagon to search for plastic scrap they can trade or make money from. The magic formula seems to be to buy plastic scrap in the United States at low prices, export it to China, and make money. While many see the United States as an opportunity with open doors, I personally think that this window is becoming more narrow.
I say this because the United States is rapidly developing its own plastic scrap marketplace. Instead of shipping all plastic scrap into China for processing, most high quality, clean scrap is now being traded and sold locally at premium prices (at prices much higher than China). What gets exported is usually low in quality and or difficult and time consuming to separate and process.
I read an article from ABC News titled â€œManufacturing in America: US Set for a Manufacturing Renaissanceâ€œ which sheds a little light into the situation. According to experts, in the coming 5 years, the United States will see a â€œmanufacturing renaissanceâ€œ where consumers will find more products made in the USA. The United States will become one of the cheapest locations for manufacturing in developed countries. While China is well known for its cheap labor, the wage gap between China and the USA is closing rapidly due to the continual increase in value of the Renminbi (Chinese Yuan) and Chinese wages (15-20% increase annually).
So how does this affect the plastic scrap market? Its simple, there will be less available plastic scrap to export as the United States began to manufacture more products. The government and various activist and lobbying groups are putting pressure on large corporations to use less virgin materials and more recycled ones. Manufacturers that originally started plants in Asia have already started moving its operation back to the USA. This step not only reduces many headaches caused by low quality workers, it reduces transportation costs and increases jobs for the American people.
On the China side of things, the AQSIQ is becoming stricter on controlling the type of recyclables that can be exported to China. The Chinese government has also been cracking down and reducing the issuance of environmental import licenses (required for importing plastic scrap into China). The customs taxes for recyclables is increasing almost quarterly which causes profit margins to nearly diminish.
What can we do to come out of this a winner? The traditional buy low and sell high tactic is no longer a viable business model. The clean, high grade plastic scrap, as mentioned above, are being consumed by the US local markets at high prices. Secondary plastic scrap will see inflated prices due to bid wars between large plastic scrap exporters. Whatâ€™s left are plastics most processors do not dare to handle. If you are a company that can handle this sort of commodity, youâ€™ll definitely come out a winner. Therefore, a key to future success is to build a knowledgeable team capable of processing non-traditional or difficult to handle plastics.
What are your views on the future of plastic scrap industry?