Original by Dr. Steve Wong
April 14, 2023
The plastic recycling industry has faced a series of challenges in recent years, which have significantly impacted market dynamics. One major factor is high-interest rates, leading to global consumer lethargy in countries including China, other Southeast Asian nations, and developed countries. In addition, recent geopolitical tensions, such as conflicts between Russia and Ukraine, China and Taiwan, and Israel and Lebanon, have caused supply chain disruptions and economic uncertainty.
Another challenge is the overcapacity of petrochemical companies, which has led to lower raw material prices than recycled plastics. As a result, many plastic wastes are not recycled, and recyclers can only survive if there are regulations mandating using recycled pellets for manufacturing plastic products. Therefore, the fate of recyclers depends on the mandatory use of recycled materials.
Another misconception is that the plastic waste recycling rate is only 9%, which has raised investors’ concerns about processing plastic waste into flakes and pellets. However, the reality is that both developing and developed countries need more infrastructure for collecting and separating plastic waste.
China’s overcapacity is challenging, and almost all plastic raw materials manufactured in China, especially PET, PE, PP, ABS, PS, and PVC, face this issue. Chinese people tend to double their production output to achieve economies of scale and reduce production costs to compete with their rivals. This creates a vicious cycle where Chinese people try to eliminate their competitors by lowering prices to see who can survive in a price war, and recently, with the domestic economy in decline, many of China’s domestically produced raw materials are exported to European and American countries, resulting in a flood of plastic raw materials worldwide!
I have talked to different Chinese market participants, and most of them hold a sceptical attitude towards demand from China, with a very pessimistic view that the mainland Chinese economy is on the decline, and many industrial productions have shifted to India and other countries with lower production costs. China is the most important market for recyclers, and in the past, it has been, or still is, the largest consumer and producer of waste plastics and plastic raw materials. Unfortunately, due to the sluggish overseas market and no sign of improvement in the future, the industry believes that a prolonged winter is coming.