2015: The year ahead

The continued sluggishness in world economic growth is the one single factor lying behind the downturn in the recycling market and until we can see a return to double digit growth in China, the Eurozone stop flirting with recession and emerging economies such as India and South America returning to the growth levels of 2010, the market place is likely to remain suppressed.

Recovered materials have been turned into a truly global commodity and while economies have been buoyant that has been great and a whole collection, processing and treatment infrastructure has developed but now the revenue matrix is coming under sustained pressure there will inevitably be some turmoil in the market.

Materials

This is more simply explained if we look at each material sector and how the downturn impacts right through the chain.

With Oil prices having fallen from $100 per barrel to circa $50 it will inevitably push through a reduction in the value of recycled plastics. Recovered plastics are perhaps more closely linked to the value of the basic raw material than any other product and there is a direct correlation between the value of oil and the value of recovered plastic. This reduction will then force manufacturers of new product to evaluate the benefits of using a recycled material as opposed to virgin polymer.

If the price is low enough new product manufacturers will where possible always choose virgin polymer because there are absolutely no issues with quality. On that basis the value of recycled plastics will have to drop further to compete with virgin polymer which in turn will put pressure on the collection and processing infrastructure. This is particularly true of local authority contracts where plastic bottles are an integral part of the collection.

Paper

The paper sector has also seen difficult times with the continued reduction in the demand for newsprint on the back of advances in digital media and a reduction in the demand for packaging in general. Mixed paper in particular is difficult with even good quality supply being difficult to place. These factors will inevitably again put pressure on the collection and processing sector as it largely the paper value and volume that underpins the overall service. In 2010 some processors were paying in excess of £60 per tonne for dry mixed recycling collection contracts but now we are seeing some prices of £50 per tonne charge to continue the same service. If there is not flexibility within the overall contract framework, sustainability will be a huge issue.

At this point in time it is also worth looking at the Packaging Recovery Note which is the mechanism by which financial subsidy reaches the market. With the lack of growth in the world market it is inevitable that the overall volume of packaging used will decline. As that volume declines so will the requirement for recycling packaging materials and so inevitably will the value of the financial support. We have seen the impact this has had on the glass sector with reducing PRN values and this again will put pressure on the general collection infrastructure.

The metals market has been hit particularly hard by down turn in infrastructure development, especially in the Far East and although we are seeing pockets of improvement such as Eastern Europe, but it will be some while before the demand rebounds significantly.