Change Afoot

The recent announcement that China will unpeg the yuan from the U.S. dollar may spell good news for plastics recyclers who sell material to consumers in that country. How this move may affect the volume of recovered plastics heading into China remains to be seen. Currently, 30 to 40 percent of the PET (polyethylene terephthalate) recovered in the U.S. is shipped to China, to the chagrin of domestic consumers.

China pegged its yuan, or RMB, to the U.S. dollar in 2008 when the global financial crisis was at its height. According to an article by Tim Hanson titled “Why China Liberated its Currency” on The Motley Fool Web site, “Given China’s trade surplus and all of the investment dollars that are flowing into China, the consensus is that China’s currency should appreciate quite a bit—with some economists suggesting that a natural exchange rate is closer to 4 or 5 RMB to the dollar rather than the 6.8 RMB to the dollar rate that exists today.”

Hanson suggests the move signals that China is backing away from the export manufacturing sector and that the country “is confident that domestic consumption can pick up some of the slack that a slowdown in export manufacturing might produce.”

As of late June, Chinese buying of recycled plastics had weakened from earlier in the year, according to a recycler based in the Eastern U.S. However, he says he expects the change in China’s monetary policy may stimulate demand.

Buyers in China remain focused on buying higher-end plastics, according to sources, as opposed to the combination loads they purchased in the recent past.

Domestically, generation remains slow. A reprocessor based in the Southeast says her company is getting less material from the manufacturing sector, though material from distribution centers appears to be flowing.

Demand for recycled plastics remains healthy, which is why the reprocessor based in the Southeast says she finds it difficult to understand the rumors circulating about a decline in pricing, particularly for commodity grade material. “It doesn’t make economic sense,” she says, adding that supply remains constrained despite growing demand.

However, the reprocessor based in the East says domestic demand has experienced some weakening heading into the summer and as consumers work down their inventories.

PE (polyethylene) in particular is feeling this downward pressure, she notes, with buyers trying to push down pricing by 6 to 7 cents per pound in the last month. Sellers met them halfway, she adds. “Sellers are not willing to sell at this big of a price drop,” she said. “It’s a waiting game.”

Interest in engineering grade resins is increasing, according to the reprocessor in the Southeast, particularly for PC (polycarbonate) and PC/ABS (polycarbonate/acrylonitrile butadiene styrene). This material is in short supply, she notes, in light of the tepid automotive market.

PVC (polyvinyl chloride) remains weak in light of the decline in construction activity, the reprocessor based in the Northeast says.