In the last update of January 2019, we remarked that the changes and updates from the end market seemed quieter throughout fall of 2018. Although the updates and changes in end market specifications seems to have quieted down, it appears that the new year has brought a significant pricing decline to many of the commodities. Cardboard pricing has declined to the lowest pricing levels that we have seen in the 30 years.
The Chinese government is acting decisively and actively and eliminating the imports of inbound material shipment through 2018 and accelerating this elimination through 2019, with an expected 0 (zero) Metric Tonnes by early 2020. The recycling industry previously thought “it is not possible” that the Chinese markets would dry up entirely, but the reality is that it is currently occurring. The consequence of the Chinese end market mills not purchasing North American recycled materials is that globally the price for these commodities is free falling.
The effect of China policy changes and reducing their consumption of recycled materials has many implications, including Chinese companies physically relocating their mills from China to other countries. In addition, we have seen an increase in investments and capacity in North America. This is good news for the medium to long term, but it is not good news shorter term. Eliminating an end market that previously consumed over half of the world’s recyclables each year, has caused a glut of commodities in the global supply chain. The remaining end markets can lower their inbound pricing as there is plenty of global supply.
The price for Cardboard was stable in January but has dropped significantly in both February and March 2019. In addition to lower pricing availability of freight is also a challenge. The lack of freight availability coupled with the decline of markets has produced the most challenging market conditions we have ever experienced.
To our valued suppliers, we regret to inform you that you will likely see the lowest pricing we have had to offer in our history. We will have to charge to receive some commodities that we have always paid for. Our focus continues being transparent with our valued suppliers and diligent with respect to the quality of material we produce to ensure that our remaining end market mills want to take the material that Urban Impact produces and ships to them.
The global market for recycled goods such as cardboard will have to readjust as capacity is moved to other countries and mill locations, but for the short term we are anticipating volatility and uncertainty with respect to pricing.