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Chinese devaluation set to hit waste industry

Waste management businesses struggling to compete with cheaper Chinese materials have been dealt a further blow by this week’s repeated devaluation of the yuan.

China’s Central Bank devalued the country’s currency by a record 1.9% on Tuesday, followed by a further 1% on Wednesday and another 1.1% today in a move aimed at boosting exports.

The bank has dismissed as “groundless” claims that it was attempting to engineer a 10% fall in the yuan.

Businesses sending recycled materials to China already face tough competition because the country is increasingly sourcing materials from its own waste. It has also imposed restrictions on imported recyclable waste following Operation Green Fence in 2013-14.

The currency devaluation is likely to force recyclers and scrap metal dealers that export waste to China to lower their prices.

Love Waste owner Peter Simpson said: “The Chinese market is very bad. I’ve been in this industry since 2006 and I think it’s worse than the big market crash at the end of 2009. It’s a very bad situation.

“The devaluation of the Chinese currency will make it harder for us. It means all our materials are 2% more expensive. We’ll have to reduce our selling price by 2%.”

At the same time, many businesses are facing increased competition from Chinese imports to Europe.

The Bureau of International Recycling’s most recent quarterly report in July found that semi-finished and finished steel exports from China were climbing even as iron ore prices increased and steel prices decreased.

The overhang of Chinese steel had become “the new normal,” said BIR Ferrous Division president William Schmiedel, in the report.

On Tuesday, Tata Steel Group admitted that pre-tax profits had dropped sharply in its European operations, citing an “alarming” influx of Chinese steel.

Talks over a possible deal to sell its long products division to Klesch Group were abandoned this month, with Gary Klesch blaming rising energy prices and cheap Chinese imports, according to the Financial Times.

Joseph Smith, who recently retired from his role as managing director of J Smith Metals, in Wolverhampton, said the currency changes would hit small scrap metal dealers hard.

“It will affect metal prices,” he said. “The prices are lower than they’ve been for four to five years.”

Reduced demand in the UK, due to the decline of manufacturing and the closure of many Midlands smelters, meant he saw “not too much of a future” for smaller scrap metal dealers.

“There are just half a dozen big players in the UK and there’s not a lot of room for small guys,” he added.

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