When China opened its Nine Dragons paper mill in 1995, recycled cardboard prices jumped within months from below $25 a ton to more than $225 a ton. China is the No. 1 consumer of recycled fiber. Other Asian countries, such as South Korea and Japan, used to purchase recyclables but now buy internally. China, however, needs recycled paper because it has few forests and its economy is based on exporting products that need packaging.
Typically, China buys the bulk of its paper from October to December, to prepare packaging for all the toys, electronics and other products exported for the holidays.
But as the world economy stiffened and China sold fewer products, a backlog began. Normally, Chinese buyers could take out loans to bridge the gap, but the credit crunch prevented that, said Bob Wallace of WIH Resource Group, a Phoenix-based waste management, recycling and logistical consulting firm.
On Thursday, recycling brokers were forced to drop the price of two shipments of cardboard heading to China by $10 a ton, two weeks after it left Los Angeles with a set agreement. Rather than argue the point with his Chinese buyers and risk having the price drop to today’s rate of about $80 a ton.
Taking advantage of the recycled materials glut, Chinese buyers are wielding a powerful ax. Buyers will find a small mistake in letters of credit and quote a lower price to brokers once shipments are halfway across the Pacific Ocean. With few other options, most brokers are forced to accept it.
Some speculators shipped tons of scrap metal and materials to China hoping to negotiate prices once there. This was not a problem during the good days, but now ships full of recycled materials are anchored off China’s coast with no buyers. “It’s about as bad as I’ve seen it, and I’ve been doing this my entire life,” said Fagelson, a 35-year industry veteran.
The domestic market for recyclables is small and other options have been exhausted.