The spectre of 2008 pricing levels is threatening the recycling sector as exclusive MRW research reveals how the global economic downturn is squeezing the value of reprocessed material.
As the current economic downturn continues to bite, recycling firms are reporting significant declines in the price of their recovered materials as demand dwindles.
A few traders are reportedly selling paper grades at prices below October 2008 levels, when the market was deemed to have crashed.
MRW research indicates that current prices for paper and plastics are at levels last seen in late July 2008.
For example, mixed paper and Old Corrugated Card prices are down an average 45% on the year, with news and pams also down 29%. For mixed papers, 2012 prices are at least 15% lower than the 2008 price.
The picture for recovered plastic bottles is equally as bleak, with prices around 48% down on 2011 and 12% lower compared with 2008.
Senior industry figures said that there was no suggestion that prices would slump to levels seen by the end of 2008 when the market crashed but the slump has left some traders struggling.
Fundamentals affecting the market remain the same. Recycling firms and reprocessors blame an ongoing lack of consumer demand, economic upheaval besetting the EU and tighter waste standards imposed by the Chinese authorities. Added to these factors are ever-increasing energy costs and hikes in freight rates over the last six months.
All are seen as having played their part in the recent decline of paper and plastic prices with the supply of secondary materials currently outstripping demand.
The Confederation of Paper Industries’ head of recycling Stuart Pohler said the drops were mainly due to good domestic availability and weaker demand from China and other Asian markets.
“The reaction has certainly been exacerbated by the higher prices seen over the past two years, although the trend does suggest markets may be nudging beyond market correction territory,” he said.
Pohler added that there were a couple of glimmers of hope on the horizon. He said: “Firstly, the high costs of shipping material to the Far East have certainly influenced export demand but average spot rates on the Asia-Europe trade route have shown a downward trend, so there are signs that the big container rate increases that carriers have imposed since the beginning of the year are being eroded. Secondly, the seasonal reduction in domestic recovered paper collections may provide some support to prices, thereby buying the markets some time.”
Some traders told MRW prices would go lower in the coming months, while others said that collection charges would become the norm for low grade paper and board.
Failand Paper Services managing director Peter Dyer said any immediate improvement was unlikely: “Soon, we’ll have the same problem in China that we have every year with the new import licences when it will be in dissary.”
Recycling Association chief executive Simon Ellin said that a drop in prices was not the main concern.
“Volume, which is down around 25% on 12 or 18 months ago, is more of a concern,” he said. “Also, our members are finding it difficult to get the customer to accept that there are reduced prices for paper.”
Price reductions seen in early July, which were only affecting certain lower grades, are now hitting all types of recovered paper. Merchants’ report that low grades are continuing to fall steeply with very little material moving domestically. UK mills are not confident that the situation is likely to improve in 2012.
Some traders have told MRW there is strong data to suggest that prices will go lower still in the coming months. Others believe that it will only be a matter of time before collection charges are once again the norm for low grade paper and board.
But UK mills are pleased that, with a dearth of feedstock in the system, prices have gone down to more “reasonable levels”.
Though some waste management companies are reportedly stockpiling paper and hoping for an upturn, spot traders are said to be desperately trying to shift their material, in case mixed bales lose further value.
One large reprocessor told MRW: “There will be a few waste management companies who are going to struggle if they are solely reliant on the sale of recyclate.
“Everyone in the waste industry has to have a diverse and flexible business plan to cover the losses that occur when the economics fail. Prices will fall away but your costs don’t.”