An Economist's Perspective - Oregon.gov
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An Economist’s Perspective
Use economic theory to understand why
recycling isn’t broken
Use economic theory to explain why a
rebound in pricing for recycled paper grades
is all but inevitable.
China was > 50% of world demand for
recyclables
Now, China is < 25% of world demand
That’s a demand shift! Recycled Paper hit the hardest
◦ Paper represents about 75% of ResMix Yield
◦ “Where paper goes so goes the value of ResMix”
Low End Plastics also hit hard
◦ #3-#7, Mixed Rigids, Film
◦ (There never was much volume or value here) If demand drops (shifts) by >25% and supply
is inelastic (vertical) what happens to price?Supply
$ Residential Market
Demand Shift
P1
D1
P2
D2
Q1 Quantity What is the name of the point where the
demand and supply curve cross? The Equilibrium Point or Price
◦ The price where sellers can sell all they choose to
and buyers can purchase all they want to.
In different words, the equilibrium price is where our
bales move to a consuming mill without delay! Virtually all MRF paper on the West Coast
moved in 2018 despite a huge leftward shift
in demand
◦ Textbook example of a free market quickly
adjusting to changing circumstances
◦ Clear example that the market for recycled paper is
not broken but rather, is working just as predicted Yes, I understand that we do not like the
current price for paper recyclables
With a > 25% drop in total demand, what did
we expect price to do? What can economic theory tell us about the
future for recycled paper pricing?
Answer- A lot! Supply- We know supply
◦ It’s vertical
It’s fixed in the near to mid-term
(subject to general economic activity ) Demand- We know demand as well
◦ In North America, the paper industry announces
most major capacity additions or investments
publically. In 2018 & 1st Qtr. of 2019, there were 16
announced paper mill investments in US &
Mexico alone!
Wow!Company Location Grades Type Capacity Est Start
Increase/Yr.
Midwest Paper Combined OCC Conversion 350,000 Summer 2018
Group Locks, WI
Packaging Corp Wallula, WA OCC & Straw Conversion 400,000 Late 2018
of America
Packaging Corp DeRidder, LO OCC Conversion 150,000 2018
of America
Hood Container St Francisville, OCC New 120,000 2018
LO
International Riverdale, AL OCC Conversion 450,000 Summer 2019
Paper
Grupo Gondi Monterey, Mex OCC New 441,000 2019
Copamex Anahuac, Mex OCC,MIX Conversion 220,000 2019
Bio Pappel Port Angeles, OCC Conversion 250,000 Early 2020
WACompany Location Grades Type Capacity Est Start
Increase/Yr.
Pratt Industries Wapakoneta,OH OCC,MIX New 425,000 Late 2019
Nine Dragons Biron, WI OCC,MIX Conversion, 360,000 Late 2019
New
Nine Dragons Rumford, Maine OCC,MIX New 343,000 Early 2020
Green Bay Green Bay, WI OCC,MIX New 685,000 Spring 2021
Packaging
Cascades Hanover,VA OCC,MIX Conversion 400,000 2021
Nine Dragons Fairmont,WV OCC Conversion ? 2019
Shanying Ballard Conversion
County,KY
Port Townsend Port Townsend, OCC Upgrade 128,000 Late 2019
Paper WACompany Location Grades Type Capacity Est Start
Increase
CorrVentures Albany, OCC New 300K/Yr. 2021
NYCompany Location Grades Type Capacity Est
Add/Yr. Start
Shanying Malaysia MIX New 2 Mill/Yr. 2023
Interna’l
Lee & Malaysia MIX & OCC New 1.2 Mill/Yr.
Mann
Zhejian Malaysia MIX New 700K/Yr.
Xinshedgd
Zhejiang Malaysia MIX & OCC New 1.4 Mill/Yr.
Jingxing
Lee & Vietnam MIX & OCC Addition 400K/Yr.
Mann
Thuan An Vietnam OCC Addition 250K/Yr.
Paper
Dong Hai Vietnam OCC Addition 200K/Yr. 2019
Marubeni Vietnam OCC Addition 350K/Yr. 2020-1Supply
$ Residential Market
Demand Shift
P1
D1
P2
D2
Q1 QuantitySupply
$ Residential Market
Demand Shift
P1
D8
D7
D6
D1
P2 D5
D4
D3
D2
Q1 QuantitySupply
$
D18
D17
D16
D15
D14
D13
D12
D11
D10
D9
Q1 Quantity◦ #3-7 Plastics (Yes, you read that correctly!) ◦ Two established recycled plastic processors have announced capacity expansions in Canada Merlin Plastics in Vancouver BC EFS Plastics in Ontario Canada Both vertically integrated producers
Canadian plastic processors see an
opportunity to make money.
Why?
◦ Competitors, China & SE Asia countries have left the
market place
Almost total absence of demand
Supply of material in US remains constant Why?
◦ Canada subsidizes the construction of plastic
processing facilities with grants and loans
Think “free” money
◦ Lack of competition means Canadians can price for
extra margin
Think negative pricing Canadians sensed an opportunity to make
money. They responded with major new
investments.
While the market for #3-7 is in adjustment, it
remains strong and responsive to market
conditions
◦ Not broken Pacific Northwest MRFs are responding to
new quality demands from buyers by
investing
◦ Spend to playCompany Location Improvement When
Pioneer Clackamas Plastic Opticals Dec 2018
& Robots
WM Tacoma Paper Opticals & April 2019
Screens
Republic Seattle Paper Opticals & April 2019
Screens
EFI Portland Baler, Post Sort June 2018
& Screens
Garten Salem Feed Drum,
Screens & Glass
Cleaning Markets for recycled materials are pricing at
appropriate and predictable levels.
Market participants are responding to current
pricing and margins with appropriate new
investments
When the investments come online, pricing
will inevitably improve. (ceteris paribus) What is the difference between an Economist
and a confused grey haired old man ? The Economist is the guy with a calculator!
Thank you for your interest and participation!
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