Waste Management: The Effects Of China's Recycling Import Ban

Apr. 23, 2018 10:20 AM ETWaste Management, Inc. (WM)5 Comments
William Daniel profile picture
William Daniel
1.05K Followers

Summary

  • China instituted a new policy banning the import of 24 types of solid waste, and changing the allowed contamination rate for recyclables to just 0.5%.
  • After reviewing the affects of this policy on WM, I am not worried about the company going forward.
  • Q1 2018 showed the resiliency and strength of one of the most stable, well-run companies in the markets.
  • If the market overreacts and share prices fall, this may be a good entry point into WM for investors who have been waiting their turn.

Beginning January 1 st, 2018 China instituted a new policy banning the import of 24 types of solid waste including unsorted paper products and polyethylene terephthalate (a low-grade plastic used in bottles). They also instituted a new contamination rate for recycling imports of just 0.5% and temporarily suspended licenses for many recyclers. In a note to the W.T.O China said:

Large amounts of dirty wastes or even hazardous wastes are mixed in with the solid wastes that can be used for raw materials. This polluted China’s environment seriously.

The ban has caused a serious upheaval in the recycling markets around the world. Recycling commodity prices declined 36% in Q1 2018 alone and volumes declined as well, if only by 1% at Waste Management (NYSE: NYSE:WM).

Over-filled Recycling Center in Isabella County, Michigan.

Source: The Morning Sun

Many recycling operators in western countries are feeling the heat as China has historically been the number one importer of recycling, accounting for 51% of worldwide scrap plastic imports last year. From Oregon to the United Kingdom, backups of recycling are being reported as businesses struggle to find new destinations for their now overly contaminated recycling. Fortunately, as always, the well-run WM seems to be taking things in stride.

A Resilient Q1 2018

In a recent article, entitled Waste Management: A Boring, Trashy Portfolio Cornerstone, I lauded WM’s efficient management and world class moat. Having purchased shares of the company almost a decade ago, I see WM as one of the few buy and hold forever names in my portfolio. In Q1, they proved their resiliency in the face of a looming trade war with China. Q1 earnings revealed a beat on EPS estimates by $.08, despite the pressure China has placed on their recycling business. Revenues were up 2% YoY as well at $3.51 billion, although they missed analysts estimates by $70 million.

This article was written by

William Daniel profile picture
1.05K Followers
Fortune Markets and Economy Reporter. Prev. Business Insider Investing Reporter. MS Business Journalism. I'm mostly a passive investor these days(and I think you probably should be, too), but I still "seek alpha" with a portion of my portfolio.The more I learn, the more I realize just how much I have to learn. Do your own research...blah, blah, blah...*some quotes about investing or something*

Disclosure: I am/we are long WM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Recommended For You

Comments (5)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.