Waste Management: Headwinds From China Ban On Foreign Waste

Jan. 10, 2018 9:06 AM ETWaste Management, Inc. (WM)RSG, WCN, WCN:CA6 Comments
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Summary

  • China started a ban on 24 types of recyclables and solid waste.
  • Pricing for recycled commodities expected to trend lower due to China ban.
  • Waste Management has the highest exposure to recycling among top 3 industry players.

All amounts in US$ unless otherwise noted.

China announced a series of ban and restrictions on importing waste and recycles from other countries, causing major havoc among North American and European countries. Waste Management (NYSE:WM) has ~10% of its 2016 revenue tied to recycling, the highest among the top 3 solid waste companies. We expect the China ban to negatively impact WM's recycling business, but the impact will likely be moderate as mitigated by tax cuts and announced capital management programs including share buyback and dividend hike.

Recap of The Event

In 2017, China announced a National Sword initiative which involves lowering the threshold for contaminants in imported material for recycling. China has long been the largest global importer of many recyclable materials. According to the U.S. Census Bureau and the U.S. International Trade Commission, China imported 776,000 metric tons of reclaimed plastic and 13 million metric tons of recycled paper from the U.S. in 2016. The total value was $2.3 billion.

However, coming July 2017, the Chinese government announced big changes in its rules governing the import of recyclable materials. Starting on January 1, 2018, China is banning the imports of 24 types of recyclables and solid waste. The move was driven by a rising awareness among the government and locals for a better environment.

The recycling materials being imported to China comprised primarily of paper and plastic. Although the new rule does not ban the import of recycled plastics and paper outright, it does limit North America’s ability to export to China. The Chinese government is proposing to lower the minimum required contamination level from 1.5% to 0.5% and banning the import of 24 categories of solid waste (e.g., unsorted waste paper, waste raw textiles, vanadium slag, etc.).

The new threshold of 0.5% has been described by many in

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