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China’s Green Fence keeps out metals recyclers

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Last February, China began more carefully inspecting imports of recyclable metals and other materials to make sure they complied with regulations. The new policy, informally known as Green Fence, went into effect without warning or, at first, any official explanation. It has resulted in added delays, higher costs and in some cases, rejection of recyclables destined for the country.

Recyclables inspectors at Chinese ports reportedly turned back shipments of 68,000 tons in the first 5 months of 2013. It costs more than $2,000 to return a rejected container to the U.S., and the chance of incurring those costs has discouraged recyclers from taking the risk of shipping to China. Partly as a result of Green Fence, Chinese imports of U.S. recyclables fell 11 percent to 3.5 million tons in the first part of 2013, compared with 2012.

For much of the year recyclers from the U.S. and other countries have been trying to figure out the best way to comply with the new inspection regimen. Shippers of post-consumer plastics, paper and automotive shredder output have been especially affected.

Despite advances in recent years, current technology doesn’t allow recyclers of certain materials to easily or cost-effectively meet the standards imposed by the new inspection protocol, said Scott Horne, general counsel and vice president of government affairs for the Institute of Scrap Recycling Industries in Washington. As a result, some U.S. recyclers are employing more manual sorting, which can quickly become cost-prohibitive.

In addition to technological obstacles, one of the problems recyclers have with Green Fence is the way it came about. The tighter inspection process was implemented without any warning, a practice that is common with the Chinese government, Horne said. In this instance, shipments already at sea were subject to being rejected on the basis of a new inspection regime no one knew about when the cargo left port, Horne said.

The actual rules being enforced were nothing new, however. They’d been in place for years, but the inspectors in charge of admitting scrap to China weren’t enforcing them. In explaining the change, Chinese officials said that too many shipments were arriving with contaminants, materials improperly mixed together and improper labeling.

Inspectors reportedly turned away 68,000 tons of recyclable shipments in the first 5 months of 2013. The importation rules were not new, however, the rigorous enforcement of them came about with no warning.

The regulations call for no more than 1 or 2 percent of unrelated material, depending on the material, in a shipment. Before the tighter enforcement, some containers purportedly full of recyclable materials had up to 40 percent non-recyclable trash, including medical waste, according to Chinese officials. One shipment of used tires was labeled as containing rubber bands, they added.

As the largest foreign consumer of U.S.-generated recyclables, any change in China’s appetite is a significant event. For the last decade, that appetite has grown strongly. The effect of the tighter restrictions on U.S. exports to China has initially meant growing stockpiles of U.S. recyclables and reductions in the number of U.S. buyers of recyclables.

Some individual U.S. companies might have been significantly affected by Green Fence. For instance, Keywell, a 90 year old stainless steel recycling company filed for bankruptcy protection late last summer citing depressed nickel prices and sharply lower sales during 2013. About the same time, a $25 million metals recycling facility project in California was canceled when it couldn’t obtain financing after a successful year long legal fight to gain approval for the project.

Of course, other trends are affecting recycling. For instance, demand for recycled nickel alloys and stainless steel had been slumping before Green Fence, Horne noted. At this point, it’s hard to quantify the effect of Green Fence on recycling in the U.S. “What Green Fence may or may not have done is very difficult to determine,” Horne said. “There’s no data that would allow anybody to back it up.”

It’s equally uncertain what the long-term effects of Green Fence may be. However, there are a number of possibilities. One is that single-stream recycling, which has been growing in popularity as a curbside collection technique, may require significant additional processing to meet the Chinese requirements. That’s because dual-stream collection allows for easier separation of recyclables, making it less costly to achieve the contamination standards required by Green Fence.

Another likelihood is more investment in recycling technology. Horne said recyclers are working with equipment vendors to develop the ability to sort recyclables to meet the Green Fence standards.

Finally, it’s possible that U.S. recyclers will develop other markets for their materials. Those may include consumer processors as well as European or other consumers as the added costs necessary to meet Green Fence standards reduce the cost advantage that Chinese processors had over those in other places, including the U.S. “People are starting to wonder if there are alternatives to the China goliath,” Horne said. “It could result in changes in the trade patterns of those materials.”

To date, Green Fence hasn’t proven an insurmountable barrier for most recyclers, nor has it had what looks like a lasting impact on the industry. However, it’s not certain when or whether Green Fence will end and to what extent, if any, Chinese inspections will return to their former approach. Horne said that many recyclers are reporting a return to near normal inspection patterns. But he also noted that shippers of Zurik (nonferrous shredder output consisting largely of stainless steel), post-consumer plastics and single-stream collected paper continue to report significant difficulties in clearing Chinese customs inspections.

The initiative was originally anticipated to last 10 months from the February 2013 start date. But Chinese officials never stated that it would end as scheduled at the of November, and meanwhile, the more rigorous inspections have continued unaltered. Now, it seems possible Green Fence will be extended into 2014 and perhaps indefinitely, especially if, as some observers say, it has helped increase revenues from taxes levied on imports of recyclable materials.

Meanwhile, recyclers are faced with a murky problem with the world’s largest buyer of recyclable materials. Nobody is completely sure how long Green Fence might stick around and what might replace it. That’s kept recyclers’ attention closely fixed on the sparse news from Chinese officials. “For people who handle certain commodities,” said Horne, “it continues to be a significant concern.”