Plastics Market Commentary by Dr. Steve Wong

Steve WongPlastics Market Commentary

by Dr. Steve Wong

 A bearish moot which dominated the market since May this year was removed by mid-September.

These few months saw the prices of many items tumble, particularly the low-end materials from post-consumer scraps such as low grade mixed rigid plastic, film from municipality, low yield AG film and mixed runner from production. Shipments destined for Asian main ports were all sold at 10 to 40 dollars per ton. During the period, engineering plastic scraps were not doing well either, except for PC and PMMA, as a lot of factories had relocated to the neighboring countries. Some of the shipments which were not taken up by buyers had to be repatriated to the loading port. Market demand was dominated by those items in need for manufacturing of products for China’s domestic consumption. With a population of close to 1.4 billion, the China market is undoubtedly immense. The most sellable scrap plastics continued to be film from packaging, big bags, high yield agricultural film, PE bottles and drums.

Because the market has become very transparent nowadays, the cost and margins are not a secret between buyers and suppliers. Narrow margins makes trading difficult unless traders are willing to work on thin margins and provide services on goods inspection and shipping arrangement apart from sourcing.  Some choose to integrate with the down-stream operations through processing, wash and dry, regrind and pelletizing. We saw users skipping traders to buy directly from the source. Vice versa, suppliers also prefer to do direct business with users.

The way I see this business being viable is that one has to have direct sources, their own processing factory with efficient and high capacity machines, as well as good team spirit and direct customers since the market is so transparent.

We are in a very challenging business environment amidst frequent changes in government’s environmental policies. We saw people going bankrupt not because of their capability, but because of sudden enforcement of government policies which often force factories out of business.

Outlook

While the Chinese government is determined to improve the ecology condition of China, more restrictions on imported scrap plastics are expected. But timeline is not clear.

Being relatively stable in terms of regulatory policy, South-east Asia is an attractive place for the recycling industry. Furthermore, low cost such as labor cost and low import duty is another competitive edge.

By Dr. Steve Wong
Chairman
Fukutomi Company Limited
steve.wong@fukutomi.com

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