Textile recycling industry experts have warned artificially high prices for used clothing have created an unbalanced market, leaving the sector unprepared for a forecasted drop in prices.
There has been a boom in used clothing prices in the last three years due to expanding markets in Eastern Europe, according to Paul Ozanne, national recycling co-ordinator of Salvation Army Trading Company.
He told MRW this price increase caused an influx of new textiles operators.
But industry members said that while prices have been rising for the last five years, export markets are now struggling due to the economic downturn filtering through into Africa.
Ross Barry, president of the Textiles Recycling Association, told MRW that UK textile recyclers are having to compete with a stronger Chinese presence in the African market.
He added that the British Pound is “incredibly strong” versus the Euro and the US Dollar, making UK textiles expensive.
Barry said: “From the conditions in Christmas, you can gauge what the conditions for the rest of the retail year are going to be like.
“We’ve not seen the huge demand that we would expect at this time of year, which makes us a bit nervous for the coming year.”
Phil Geller, financial director of I & G Cohen, echoed Barry’s comments and told MRW: “It’s very likely you are going to see further price falls in the New Year because there is still a lot of material on the market.”
This is supported by a recent WRAP market price report, which suggested values of used clothing could drop by a further £100 per tonne in the first quarter of 2014.
Industry members agreed the sector is struggling to adjust to the market drop.
Ozanne said that both new and established commercial collectors have been offering high prices per tonne to secure contracts with charity shops and local authorities, with the “imagined potential” for high rewards.
He said high prices per tonne are often unsustainable in the long run due to “fluctuating market prices and squeezed profit margins”.
Geller said: “Some contracts were taken out at the peak time when prices were rising. Those might be three to five-year contracts. Some people will be tied into high price contracts.
“They are going to see big falls, because people will have been overpaying for a period of time.”
He added that prices will either be reduced to match the current value, or collectors will stop collecting due to the quality of material, which would put “further downward pressure on the market.”
Even in the last two weeks Geller has seen private companies reduce the prices they are paying to local authorities and charity shops.
He concluded that if the prices do not settle at a “more realistic level”, there are likely to be more closures in the textile recycling industry. In July two companies - Ragtex UK and Retrograde - ceased trading.
He added: “some people are holding out in the belief that the prices will hold on and they won’t. It’s just not realistic.”