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Firms ‘to go under’ as industry waits for Defra

Poor market conditions following China’s crackdown on waste imports is costing businesses thousands of pounds each week, with closures expected this year as some material prices plummet to zero and beyond.

Local authorities are dealing with the knock-on effects, with some facing force majeure [an unforeseen event] over their recycling contracts, while Defra has been heavily criticised for failing to respond to the situation.

Mixed papers, one of the materials included in China’s de facto ban, has struggled to secure a new market and some traders have been unable to find buyers as a result.

MRW has heard from a number of company owners, including one who said the knock-on effect of the ban was costing his firm £100,000 a week following contract renegotiations.

Simon Ellin, chief executive of the Recycling Association, said he was aware of companies having difficulty in paper as well as plastic markets, and the economics no longer stacked up: “I would be utterly amazed if we didn’t see some casualties.”

John Glover, managing director at Bywaters, said the industry was “walking on a bed of nails”. He agreed it was very likely that businesses would go under if the market did not improve, because many firms did not have the resources to respond to China’s strict contamination standards.

Ray Georgeson, chief executive of the Resource Association, said that smaller firms did not have the capital resources to reconfigure instantly how they process material, and therefore could not meet the new quality standards.

“I can see there are tough times for them. That is a consequence of what has been a dramatic policy shift,” he said.

MRW understands that stockpiling of mixed papers is underway in some parts of the UK. But Glover warned against stockpiling, saying those who did so risked going bust because mills were less keen on such material and it posed a fire risk. Ellin added that he expects to see material coming back from China following rejection at ports.

MRW has also learned that some councils are being forced to alter their kerbside collection services to cut costs, as contracts are renegotiated due to falling material prices.

Many recyclers have found themselves unable to supply material that meets China’s strict contamination limits, and councils have been blamed by some for supplying poor material from commingled kerbside collections.

Ellin said that mixed papers underpin kerbside collections in terms of weight. He said councils are already “desperately underfunded by the Government”, and many have had their contracts renegotiated under force majeure because of the huge market imbalance caused by the Chinese ban.

“Kerbside collections are suddenly becoming unsustainable. That’s where the Government has got to step in and it has been very lax,” he added.

Ellin also said that local authorities were not taking responsibility for the quality of material going to MRFs. Better education of residents by councils was needed to tackle rising contamination levels, which is pushing up costs for waste management companies.

“MRW has asked Defra when it expects to respond to the letter. But as prices continue to plummet, time is running out. It is vital that the government works with the industry to keep local authority costs down, UK reprocessing plants open and recyclable materials out of landfill.”

“Even using the resources they have, in terms of communication and education [councils] haven’t done a particular good job, otherwise why would contamination in commingled collections be reaching 20%?” he said.

Georgeson added: “The danger is that we are going to see the withdrawal of council recycling services, which is never good news. But if there isn’t a market for the material, what on earth are they supposed to do?”

As MRW has reported, Brighton & Hove City Council criticised its PFI waste contractor Veolia for recycling only those materials for which there was a guaranteed end market. With China removing itself as a key destination, councils have been put in a difficult position.

There has been little guidance from the Government so far, despite lobbying from various groups. Georgeson said it needed to address the issue with “some seriousness and urgency”.

A letter to resource minister Therese Coffey from industry bodies outlining “strong concerns” about Chinese import restrictions on waste materials is yet to have an official response, more than a month after it was submitted.

The letter was copied to the Environmental Audit Committee (EAC), whose chair Mary Creagh said it showed the frustration within the industry at the Government’s response.

Sent on 8 February, the joint letter from the Environmental Services Association, the Recycling Association, the Resource Association and the Confederation of Paper Industries urged Defra to work with them to avoid a crisis.

It states they were “alarmed to hear that the severity of the situation was not acknowledged at Defra’s evidence session at the EAC inquiry in January”.

The letter outlines how there is not enough capacity in alternative markets to take surplus material, and that global competition for those markets had increased, dramatically affecting prices. It said the scale of the challenge is “unprecedented and should not be underestimated”.

Creagh said: “This shows just how frustrated the recycling industry is with the Government’s response to the Chinese waste restrictions. When she gave evidence to my committee, the minister was not able to provide clarity on how the situation in China will develop in 2018.

“It is vital that the Government understands the implications of the ban for UK recycling, and work with the industry to keep local authority costs down, UK reprocessing plants open and recyclable materials out of landfill.”

“Many recyclers are unable to supply material meeting china’s strict contamination limits, and councils have been blamed for supplying poor material from commingled kerbside collections.”

Georgeson told MRW that he was dismayed by the lack of response so far: “There is nothing coming out of the Government. We write letters, we make statements, we go in front of select committees, and nothing comes back other than bland reassurances that it will sort itself out.”

He said it seemed as if ministers were ignoring advice given to them by officials about waste industry concerns.

“Our collective confidence in their ability to tackle this challenge is very low, on the back of the lack of response and tone, which indicates suggestions that we are overstating the seriousness of the problem and that we should all calm down,” he added.

The letter acknowledged that it was unlikely the Government would convince China to reverse its decision, but had outlined three main measures that could avoid a potential crisis. These included clarifying with China on import licences for 2018 and how the new contamination standards will be measured.

It also called on Defra to provide “legal clarity” for diverting material such as mixed paper to other outlets. It called for the Environment Agency to be sufficiently resourced to tackle criminals who may “take advantage” of the situation by illegally dumping waste.

The letter also listed longer term solutions, which included prioritising quality over quantity, driving investment to build new facilities, as well as calling for a more robust producer responsibility system with higher packaging recovery note targets, replacing “blunt” weight-based targets.

Alarm bells are ringing

Philip Mossop, founding director of Wastecollection.com, started a debate on Linkedin after hearing from a broker that dry mixed recycling is “finished in the UK”. These are some of the responses from waste companies, which have been anonymised.

  • “Dry mixed recycling in a commingled state as we have known it is over. Tipping locations are closing doors, tightening what is acceptable and increasing costs to dissuade the use of this methodology of collection. Perhaps a cleaner system is now needed.”
  • “I can see some big changes on the horizon within the waste industry. I think just recycling the high-value paper and card might be the only way forward for a while. Everything else to energy from waste.”
  • “Mixed papers has already turned price-negative and is set to get worse. There are thousands of tonnes of mixed papers sitting around and stocks growing daily.”
  • “The MRF we used has closed its doors to dry mixed recycling because it is not sustainable due to contamination. The industry has led itself into a major issue which will need to change very soon. Maybe reverting back to simple card and paper collections or segregated recycling is the answer to provide clean materials.”

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