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Be pragmatic about material costs

Gev Eduljee

A strong market for secondary materials is vital if the UK is to take advantage of the economic potential presented by the cir­cular economy (CE).

But news that oil prices are again on the way down after signs of a rally earlier in the year suggests that the chal­lenges faced by the secondary materials market are not yet fully resolved. Not only has the price of Brent crude dipped below $50 a barrel, but indus­trial metal prices have also fallen, affecting materials such as iron, steel, copper and zinc.

In April 2017, commodity price indices were reportedly back down to 2016 levels. Demand for iron ore and other materials has fallen by more than 30%, largely as a result of China’s softening economy. Stockpiles are growing as infrastructure projects slow.

With sales of recycled plas­tics particularly badly hit dur­ing the previous oil price slump, markets could again soften in the face of slowing demand as the spotlight for end-users focuses on quality rather than quantity.

None of these ominous demand-related signals appears to have dampened the Euro­pean Parliament committees’ enthusiasm for raising statu­tory recycling rates to reck­lessly high levels – as many at the sharp end of the secondary raw materials (SRM) market would regard.

soaring prices

soaring prices

Structural failures in the market continue to exacerbate the mismatch between the dynamics of supply and demand.

Environmental and social costs associated with the extraction and processing of virgin raw materials are not fully reflected in their market price – if ever. This makes their price artificially low.

Since SRM prices tend not to be determined by production costs but are pegged to the price of virgin raw materials in the long run – such as plastics to the price of oil – SRM can struggle to compete.

According to one estimate, the price of virgin copper and beryllium would increase by 12% and 327%, respectively, were the cost of greenhouse gas emissions properly fac­tored in. And price reductions during periods of excess stock can undercut SRM prices, as has occurred with scrap steel.

Our sector has consistently argued that high recycling rates should be balanced by appropriate demand-side measures. The EU discussions provide an opportunity to inject some pragmatism into the CE package by rejecting the more egregious amend­ments proposed.

Defra take note: we don’t want history to repeat itself this time round.

Gev Eduljee is external affairs director for Suez Recycling and Recovery UK and is writing in his capacity as an RWM ambassador

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