Councils ‘must face up to new economic realism’

On the paper front, one leading exporter of recovered paper has said that the sector is not being hit too hard yet, but further Chinese currency declines would be more difficult to absorb.

On metals, after some signs of steadier markets earlier this year, ferrous and non-ferrous scrap prices have continued to fall with local authorities seeing the price of aluminium and steel cans reduced.

And, the weakening commodities markets have prompted one senior UK waste management figure to caution that local authorities need to face up to a “new economic realism” in the sense that rebates for recyclables are reducing.

Scrap metal

Traders are putting the reductions in scrap metal prices down to overall reduced demand for steel and non-ferrous materials by Chinese businesses in particular with slower growth within China and by developments its businesses are undertaking in other parts of the world, including Africa.

Other factors for the scrap reductions include the availability of iron ore and billet at low prices.

In the UK this is also impacting on local authorities who are facing reduced scrap prices for material arising at CA sites and is also seen as likely to affect the value of WEEE (waste electrical and electronic equipment) and some contracts with compliance schemes.

And, the value of used cars is also down with more potential for cars to be abandoned again as the price per tonne is now lower than that paid for light iron.

The big question, said one exporter, is how the reductions in stock markets will impact on the commodity markets.

Views in the UK as to the impact of the share price falls vary but there appears to be an acceptance that the realignment in China, with its currency reductions, is very real but that the world economy is not on the verge of collapse again.

Stockbroker view

One analyst view came from David Buik, market commentator at stockbroker Panmure Gordon. Mr Buik told letsrecycle.com: “Commodity prices in the last four years have been driven by China and there is very, very wide ranging evidence that in the last year demand in China was not what the government said it was. The Chinese government have been economical with the truth and growth was nearer 3% than 7%.”

He added that the world economy is also seeing the benefits of quantitative easing coming to an end and that Chinese shares were “overblown”. Mr Buik noted that “Chinese shares have now fallen 40% but they had risen as much as 150% in the previous year and what we are seeing is a perfectly plausible correction in share values.”

Paper exports

One UK paper sector expert told letsrecycle.com that while he did expect some softening of the export market for recovered paper in September, there was no reason for this to be dramatic.
“The logic is that if China has reduced its currency value this should make exports more attractive and packaging is needed for these. There is also the 14% tax on the export of packaging which is also keeping the price of material down so it is affordable within the country both for products for the Chinese internal market and export market.

“Demand therefore for material to make this packaging will remain and the Chinese need to buy waste paper in the form of cardboard and mixed papers from the UK and other European markets.”

New economic realism

Reflecting on the effect on local authorities in the UK of the current markets, Herman van der Meij, managing director of Viridor Resource Management, said that there had to be a “new economic realism about the materials market from everybody in the food chain.

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“We all need to work with our local authority partners in these new markets. I say that the demand is still there but the basket price is down.”

And, referring to the Chinese currency decline and world share markets, Mr van der Meij said: “It is a little bit rough in plastics and metal. It is not easy but it isn’t that the markets aren’t there. What isn’t there is aluminium cans at £800 [per tonne], that figure is not there and you have to get used to the new world.”

He added that local authorities can influence costs and income as they are in a position “in the middle to influence quality of the material that comes in and to minimise waste.

“If we have to move 10% waste in recycling then that will impact back on local authorities,” warned Mr van der Meij. He continued: “At the MRFs we are managing material well using input, output and throughput monitoring and we are now trying to make people aware of what we are achieving. Some local authorities still need to recognise that there are differences in outthrows at MRFs – different materials can be acceptable, such as 1% of packaging paper may be acceptable in newspapers, but food waste and nappies are prohibited and are contaminants.”

WRAP reassurance

Reflecting on the Chinese currency devaluation and share price falls, Marcus Gover, director of Waste & Resources Action Programme (WRAP) said: “China will continue to be an important market even if there is a slow-down. But, this shows that it will be important to have a portfolio of markets for recycled materials, both at home and abroad.”