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Material Focus December 2016: Plastics

Plastics

The last quarter of 2016 brought about more difficult news for the UK’s plastic recycling sector.

Evolve Polymers was sold by Aurelius to US-based Plastipak Packaging and, as MRW went to press, another reprocessor entered a company voluntary arrangement with its creditors.

But we should not see this as worry­ing trend for the plastics recycling industry. There are plenty more companies that have continued to be suc­cessful and profitable since the oil price dropped than have suffered financial difficulties or gone under.

Businesses are still prepared to invest in UK plastics recycling, and that includes us at Vanden. In many cases, those companies with a more diverse business model have managed to sur­vive and prosper, while those that focused on one material have found business harder.

Developments in the sector came on the back of a relatively stable period in terms of prices for plastics, with the last half of 2016 seeing little to no move­ment, depending on the grade.

The continued slide of the pound against the dollar following the Brexit vote in June helped to counterbalance the effect of less revenue from PRNs

PP and PS were the exceptions. An excess supply of PP, combined with low virgin prices, made it difficult to find consistency in end markets, while low demand for PS from end users greatly affected the price of scrap.

Some change was seen with LDPE grades in response to a little speculation on third quarter packaging recovery note (PRN) data, but this was only tem­porary and the price settled down again. Indeed, plastic PRNs/PERNs were one area where the market did change, with values by the end of November reaching a third of the level seen in June 2016.

With the final month of the year now gone and the transitionary period between the 2016 and 2017 target years now upon us, all eyes will be on the Q4 data. But the expectation among many before Christmas was that the 2016 targets for plastics should be met without too many problems.

While PRN prices were falling, the continued slide of the pound against the dollar following the Brexit vote in June helped to counterbalance the effect of less revenue from PRNs. Exporters were able to benefit from UK material being significantly cheaper on global markets. While demand was subdued initially from deep water destinations, the effect of the lower pound certainly helped demand for good-quality UK material.

However, hands were also tied in October, November and even into December by the lack of containers available for exporters. Following on from the Golden Week holiday in China in early October, plus the administration of the Hanjin shipping line, ships and the containers on them were either in the wrong place, withdrawn or the shipping lines introduced blank sailings.

It became a bit of a scrum between recyclers, including those in the paper and metal sectors, to get containers to enable material to get on the water.

Demand from Asian markets at this time improved, especially with the fall­ing pound, but it was not easy to get boxes booked. Towards the end of the year, though, demand eased somewhat as Chinese importers waited to get their licences renewed.

With Chinese New Year falling early in late January 2017, there is the poten­tial for this situation to continue well into February, or possibly even March, depending on how far the shipping lines want to push it.

One impact of this has been that the cost of containers has increased by more than 50% on a typical UK to Asia route during June to November. Further increases are being pushed through in January, with lines pitching general rate increases of $200-$300 (£158-£237) per container.

With the pool of carriers reduced after Hanjin’s demise and others scaling back UK operations or entering into formal co-operation with competitors, it seems likely these threatened in-creases will stick. This is likely to mean more costs for exporters, and will inevi­tably put pressure on material prices.

We should not feel too gloomy about the fortunes of plastic recycling for 2017

If the PRN values stay where they are and the pound does not fall further, then it is likely that prices for plastic grades may come down a little.

With European and domestic demand still not too strong, Asian mar­kets are likely to remain key to ensure that UK material is recycled rather than sent to landfill or used to bulk up refuse-derived fuel with the associated gate fee.

We will also need to keep an eye on oil prices in 2017 and the impact this has on the price of virgin polymers because, wherever the price of virgin polymer moves, then this is likely to have an impact on the price of secondary material too.

With OPEC states cutting production of oil at the end of November, this led to price rises. But higher prices could also have the effect of bringing more oil pro­duction on-stream in other territories, particularly US shale, and this could limit any further rises. Most impor­tantly, it will also depend on how virgin polymer prices react to any longer-term oil price rises, and how this filters down to the scrap price.

As I mentioned at the start, we should not feel too gloomy about the fortunes of plastic recycling for 2017. There are still a large number of successful recy­clers out there. Those that have survived and succeeded have done so in challeng­ing times, and there are increasing opportunities in the market now for plastics recyclers.

David Wilson is the managing director at Vanden Recycling

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