The instability of the secondary materials market has prompted a call for local authorities and others to take a greater share of the risk in waste management contracts.
Resources and Waste UK (R&WUK), the collective voice of the Chartered Institution of Wastes Management (CIWM) and the Environmental Services Association (ESA), also suggested that the producer responsibility regime should be reformed and that a centrally managed investment fund would “buffer” tough market conditions.
A report, Managing the Risk from Secondary Raw Material (SRM) Price Movements, was commissioned to explore what price risk management mechanisms could be used to reduce the impact on the whole supply chain from a downturn in prices since 2011.
A number of businesses, such as the Aylesford Newsprint paper mill which closed earlier this year, have been badly hit by the downturn and market instability.
Speaking at the annual RWM event (pictured), R&WUK chief executive Steve Lee said that SRM price volatility became more acute in times of sustained downward trends in prices.
He argued that the industry’s exposure to volatility has increased as recycling rates have risen, and that revenue from SRMs has become more important in offsetting overall collections cost.
“Not only is this putting a significant strain on our industry but, unresolved, it undermines our ability to deliver further improvements in recycling performance and will be a serious drag on progress towards more circular economic goals,” he said.
“Ultimately, fundamental change is needed at a European level to improve the value chain for recycling. But there are mitigating measures that the UK industry can explore in the meantime.”
The report, prepared by consultancy Eunomia, said a “risk-sharing framework” should be set up between partners in the supply chain, including councils.
In the longer term, it recommends amending the producer responsibility regime to improve the value proposition for recycling, and setting up an independent fund to act as a buffer when market conditions are tough.
R&WUK also believes that there are opportunities at EU level to address more fundamental issues, notably through the circular economy package expected to be launched before the end of the year.
Eunomia found that market-based hedging mechanisms, such as exchange-traded futures contracts and ‘over the counter’ arrangements, are constrained by the relatively low volumes and trading activity in SRMs compared with primary commodity markets.
Lee added: “If UK governments remain committed to delivering increased recycling in the future, measures to reduce exposure to SRM market volatility should certainly be on the agenda.”