Currency movements since the referendum will almost certainly have an impact on the growing export market for refuse derived fuel (RDF), according to businesses involved.
This is because transactions with operators on the continent are in euros, and the £ has weakened following the popular vote to leave the European Union.
The trade has become an important revenue for waste management companies, brokers and those in the supply chain. It has risen from nothing in 2010 to nearly four million tonnes this year.
The growth of RDF exports came on the back of higher landfill tax that until 2014 was subject to an annual hike of £8 and is now £84.40. Local authorities, construction firms and their contractors found it cheaper to divert their waste from landfill and pay for RDF to be exported to feedstock-hungry energy-from-waste (EfW) plants in Germany, Sweden and the Netherlands.
The exact sums involved are commercially sensitive and not publicly available but a waste producer putting non-hazardous material in landfill can expect to pay around £110 a tonne for the tax plus gate fee. Before the referendum, RDF exports will have been about £90 a tonne.
This won’t affect our ability to export but it will affect our costs: this is a competitive market
Steve Burton, Andusia Recovered Fuels
Ahead of the vote, the £ was trading at around €1.30. It has now fallen to nearly €1.20, increasing the cost of a tonne of RDF by more than £5. With financial experts anticipating a drop to nearer €1.10, higher RDF costs would reduce the market advantage over landfill.
This would add pressure along the supply chain, assuming the plant operators on the continent were not prepared to lower their gate fees.
Straitened local authorities have benefitted from reduced landfill tax commitments and will not welcome higher RDF bills; larger waste management companies face a cut in their new revenue stream; while hauliers faced with higher fuel bills will oppose any further cut in their margins.
A feature of the growth in the RDF export market has been the growth of ‘middlemen’ such as Andusia Recovered Fuels that broker trade between regional waste management companies in the UK and continental EfW plants. Andusia, based in Hertfordshire, won a Queen’s Award for Enterprise in International Trade this year.
Director Steve Burton said his company had avoided the immediate impact through buying euros well in advance.
“If the rate ends up at €1.10, then I foresee an increase in the cost of RDF recovery of £10 per tonne, which will cost the industry £30-£35m per annum. Even RDF moving to the Nordic countries will be included in this, as their currencies are dragged along by the euro.
“Exporters will need to buy euros at some point in the next three-six months at the latest, and will be insulated in the short term if they have taken fixed-rate contracts. This is what we do, but our contracts expire during Q4 2016. Anyone who trades on the fx spot market will be feeling a 7% cost increase immediately.
“I don’t think this will affect our ability to export but it will affect our costs: this is a competitive market,” he added.
We’ve had a bit of a boost with non-ferrous. In the longer term, we don’t know, we’ll just have to ride the waves
Burton thought a few waste producers or operators might switch back to landfill until more EfW plants come on-stream in the UK in the next couple of years.
He doubted that the UK outside the EU would have any real impact on the export trade. RDF was a “no value” product and unlikely to attract significant tariffs. For example, exports from Norway (non-EU) into Sweden (EU) did not currently face a tariff arrangement, he said.
Merchants have been giving MRW an early glimpse of how the Brexit vote was affecting secondary markets.
“Non-ferrous has rallied, prices are up around 10-15%, steel is slightly better, but I don’t think there’s going to be much impact,” said one from the north of England.
A Midlands operator said: “Ferrous has stayed the same, non-ferrous has gone up a bit, I expect that’s with the pound dropping. I’m expecting steel prices to follow, that makes sense.”
One in Wales said: “We’re holding scrap and we’re hoping ferrous prices will go up, with the currency changes. We’ve had a bit of a boost with non-ferrous. In the longer term, we don’t know, we’ll just have to ride the waves.”