UK Recycling Industry Faces Increased Financial Stress as China Closes the Door to Plastic

UK re-processing sector at risk as waste management companies lack capacity to dispose of recyclable materials appropriately and costs multiply.

The global waste industry has been thrown into turmoil as China implemented its threat to halt import on almost all categories of plastic and poor-quality cardboard and paper in January 2018. The ban on imports of millions of tons of plastic waste is already causing a buildup of debris at UK recycling plants and those operating, in what is a commodity market, face chaos and financial stress in the short-term. 

China was the world’s biggest processor of recyclable materials. However, in July 2017, its government told the World Trade Organization that it intended to halt the import of 24 grades of plastic, textiles and paper, saying the items were often contaminated with dirty or hazardous material. Plastics, including PVC and polyethylene, were also covered by the ban, along with mixed batches of paper and cardboard.

The UK, which has little capacity to recycle plastic, has been trying to locate newer markets since the possibility emerged that China might shut its door. In the absence of alternatives, those operating in a commodity market will face chaos in the short-term, creating a huge strain on financial resources, with cashflow being hit particularly badly in many cases.

This comes at a difficult time for the sector, which has reported tight margins for several years, compounded by cuts in central government funds to local authority environmental services budgets and a global fall in commodity prices on recycled materials.

The UK recycling industry has already admitted that a buildup of waste is inevitable, which may lead to much of the material going to landfill or incineration, adding to bottom-line pressures due to the cost of Landfill Taxes and the like.

China’s dominance in manufacturing means that for years it has been the world’s largest importer of recyclable materials. In 2016, it imported 7.3 million tons of waste plastics from developed countries including the UK, the U.S. and Japan.

According to Greenpeace, since 2012, British companies alone have shipped more than 2.7 tons of plastic waste to China and Hong Kong – over two-thirds of the UK’s total waste plastic exports.  

The UK won’t be alone in experiencing considerable disruption, with the Bureau of International Recycling estimating that China imported 7.3 million tons of plastic scrap and 27 million tons of waste paper from Europe, Japan and the U.S. in 2016.

For many leading companies, the restrictions imposed by China have moved them to seek out new markets to send recyclable waste materials to, including Vietnam, Indonesia, Malaysia and Thailand, among others. However, other regions are also targeting these markets, which will mean that UK recycling businesses will need to do much more to ensure improvements in quality so that they become preferred suppliers. But that takes time and monetary investment during a period where the industry is in short supply of both.

Waste management and re-processing businesses are facing three distinct challenges - the speed at which their core market evaporated, global competition for new markets and the costs of having to store and sort waste, which is increasing daily. Local recycling units are now dealing with the very real issue of increasing costs as they strive to sift and sort here in the UK before shipping to new markets already swamped since the closure of the Chinese market.

Our UK Restructuring Advisory team is uniquely positioned to advise organizations in a variety of distressed and special situations. Our team has sector experts, recruited from industry and with real experience, and we understand the challenges being faced. We would urge those waste management companies facing tougher trading conditions to contact us to steer a route through to better times.

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