In recent months, prime and recycled materials prices in mainland China, Southeast Asia, Europe, and America have been struggling. Many attribute this to seasonal factors and expect stability after this slow period. However, some in the industry believe the issue is more complex. Apart from the traditional market downturn during the summer, the world’s second-largest economy, China, is facing significant economic weakness both domestically and internationally. This factor is not expected to see a short-term recovery but rather a sustained downturn with no visible light at the end of the tunnel. Given China’s crucial role on the global economic stage, any fluctuations in its economy significantly impact the global economy. Recent poor data released by China led to a 10% drop in oil prices, affecting the global petrochemical raw material market demand.
In recent years, China has faced an oversupply in the real estate market, with reports indicating over 30 million vacant properties. With the current situation of negative population growth, absorbing these surplus properties seems endless, especially in the current unclear economic conditions. People are cautious about spending money and await an assessment of the situation before entering the market. This caution is similar to other investment markets like the stock market, which has also stagnated in recent years. Demand for recycled materials such as HDPE pipes for the construction industry, PVB materials for glass curtain walls, and nylon 66 for thermal insulation strips has dropped by over 80%, leading to significant price declines. This impact affects not only a group of traders in the industry but also overseas suppliers and all stakeholders in recycling and recovery.
China is the world’s largest producer and has the largest capacity for plastic raw materials. China’s supply of 400 million tons of raw materials in the global market accounts for 33% of the total. However, with a production capacity of over 250 million tons, representing over 60% of market demand, China’s capacity continues to increase. With the plastic market constrained by severe oversupply, the chances of price increases are close to zero. Recycled materials are also facing challenges. Strangely, some recycled material manufacturers are increasing production to reduce costs. In a scarcity situation, everyone scrambles for sources, leading to even more significant shortages of recyclable materials and escalating prices. Some PE film recycling factories are forced to close down due to the inability to compete.
Another structural change is that Western countries continuously increase tariffs on Chinese-made products such as solar panels, electric cars, and other goods to protect their industries. This impacts exports and scares many manufacturers into moving out of China to other Southeast Asian countries, Mexico, and Eastern European countries, creating a permanent rupture in the supply chain. Even the remaining companies in China are reducing purchases of recycled materials as American retailers and importers can only partially rely on China’s supply chain, further affecting the demand for recycled materials.
For years, the fate of the recycling industry has been marred by misconceptions and labeled as a polluting industry. It faces a new structural change, making survival even more challenging.
Original by Dr. Steve Wong
August 12,2024