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Plastics recyclers feel the squeeze as oil price drops

Plastics recyclers in the UK are under increasing financial pressure following a sharp drop in the oil price, which has made price competition with virgin polymers more difficult.

US crude oil closed below $60 a barrel for the first time in five and half years this week, the lowest point in the decline of the past six months.

This is the result of weaker demand and surging US production on the wake of booming shale gas exploitation.

The price of virgin plastics polymers has mirrored the downward trend, as plastic is a by-product of petroleum refining and natural gas processing, although the decline has been less sharp.

Over the past 12 months the prices of virgin polymers have dropped by around 8-9% and are currently hovering around pre-2008 levels, Adrian Whyle, resource efficiency senior manager at PlasticsEurope, told MRW.

Plastics recyclers in the UK have started to feel the squeeze as they try to keep the prices of recycled polymers lower than those of virgin materials.

Keith Freegard, director at Axion Polymers, told MRW: “If we [usually] offer a polymer that is 5-10% cheaper against the oil price, as soon as the price of [virgin] polymers dips down by almost 10%, we are left completely stranded.”

Chris Collier, commercial director at CK Group, said that operators in the recycled plastics supply chain were facing “one of the toughest challenges they may ever have had to tackle”.

“Like the oil producers, faced with supply outstripping demand, the CK Group has to be very careful what regrind and scrap plastics we buy and ensuring we have market for onward sales,” he said.

“There is clearly a squeeze on us all in the chain so we all have to buy more prudently,” he added.

Collier noted that in these difficult operating conditions suppliers needed to renew their focus on quality and reduce contaminants in waste plastics.

Lincolnshire-based ECO Plastics, one of Europe’s leading bottle recyclers, has recently been bought out after one of its backers had written off its equity share in the company. In its latest financial report ECO Plastics had indicated that poor quality feedstock available within the UK presented a challenge to the business.

A challenging market environment is expected to continue next year, expert said.

“We predict that 2015 is going to be a tough year, and potentially those that adopt stringent buying criteria and build a solid financial foundation have a chance at riding the storm ahead, but sadly we suspect many will not,” said Collier.

But Chris Dow, managing director at Closed Loop Recycling, expressed confidence that fossil fuel prices will rise again in the “not distant future”. “It is worth the gamble on oil prices now to reap the rewards later,” he said.

Some organisations are already recognising the benefits of betting on the UK plastics recycling industry. For example, as part of the Dairy Road map, companies in the dairy industry pledge to increase recycled content in food containers.

  • Read Chris Dow’s opinion in full here | Read Chris Collier’s opinion in full here.

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