The impact of Chinese restrictions on imports continues to be a hot topic of discussion. In the April/May issue of the Bureau of International Recycling’s ‘World Mirror’, Ranjit Baxi of J&H International Ltd explains that China, the world’s second-largest economy, continues to face increasing debt and financial risks coupled with fears of a trade war with the USA. The two nations have embarked on tit-for-tat tariff increases on a large portion of their bilateral trade.
However, China is still expected to have registered growth of 6.7% in the first quarter, albeit down from 6.8% in the fourth quarter of 2017 and its annual growth for 2018 is projected to be 6.5%. Strong consumer demand in China with robust property investment is helping to support steady and sustainable economic growth.
The recycling industry was expecting a tough first quarter this year in view of new Chinese import restrictions. It is now evident that OCC pricing dropped sharply from the highs of 2017 owing to the failure to find new markets to replace the reduction in Chinese imports. However, fibre exports increased significantly during the quarter to India, Indonesia and Vietnam. To India, for example, exports nearly doubled.
The closure of Hanjin Shipping has increased pressure on container availability and sea freights, which had been returning to realistic levels, but have once again started to increase. During the quarter, there was a noticeable increase of around US$ 200 per container to Asia and, in many cases, of over US$ 400 to the Asian subcontinent. Freight increases will certainly have a strong effect on export pricing which, in turn, will increase domestic fibre procurement.
China imported a total of around 21 million tons of fibre last year, of which the EU supplied around 7 million tons, the USA 11.5 million tons and Japan 2.3 million tons. In January/February 2018, China imported 2.5 million tons, nearly 50% less than in the opening two months of last year, not least because of “ no imports “ of mixed paper. The USA accounted for some 45% of Chinese imports and the EU around 30% in January/February 2018, with the rest coming from Japan and other supplying regions. OCC made up nearly 75% of the total.
Enforcement of the Chinese government controls allowing only recyclable fibres with a maximum contamination of 0.5% has greatly affected export volumes to China and also fibre prices.
The fibre export trade to China was greatly weakened during the first quarter, with prices for mixed paper decreasing rapidly while demand for the better grades of OCC tended to stabilise during the quarter thanks to strong European demand.
Steadily increasing demand from other Asian markets such as India, Indonesia and Vietnam resulted in a gradual increase in export volumes to these destinations during the quarter. Exporters are looking to these markets for further demand growth going forward.
Exporters had been looking forward to a new direction from the market after the Chinese New Year but there were no noticeable changes. Trade barriers, changing tariffs and the increasing sea freights anticipated for the rest of the year, coupled with currency considerations, do not make it easy to forecast the market trend for the remainder of 2018, other than to say that we can expect a roller-coaster ride.
