As a consequence, orders for China are expected to reduce sharply in June and those that are made will be at lower prices, perhaps down to £60 a tonne compared to prices in the £80-90+ range of recent months.
At the same time, the weakening prices for used plastics are seeing film hit harder than bottles.
Market correction
The market consensus appears to be that this is not a repeat of the crisis seen nearly two years when prices slumped and demand crashed as the recession bit. Instead this is being seen as a short-term market correction in the wake of slower demand than expected and that the Chinese buyers were forced to pay higher prices than they would have liked earlier this year, because of competition for material from German and Poland.
However, the world economic situation is seen by some merchants as playing a part, particularly the weakening stock markets in May although these have now shown a recovery. China too has looked for some stability by indicating its support for the Euro.
Descriptions of the current market fall range from “a huge crash”, to “freefall” and “short-term reduction”.
Others note that arisings are down all over Europe and that there will be renewed demand again in July. What seems clear is that stocks of finished product need to be used up and mills are keen to reduce their raw material buying cost. One expert said that arisings are down partly because retailers and distributors have large stocks of goods so cardboard is sitting as boxes and packaging in warehouses and elsewhere for longer periods than normal.
Weak demand for Christmas 2010 goods is also an issue with Chinese manufacturers seeing lower orders than expected for this time of year.
Paul Briggs, managing director of the UK's Mark Lyndon Paper Enterprises – supplier to China's Lee & Man Paper Manufacturing – said: “The mills in China are very quiet and are having to take a bit of downtime. Stocks of liner board have built up and yards are full of raw material.”
Mr Briggs confirmed that his company would be reducing orders in June for raw material and that the prices would also reduce.
Prices have also fallen in the United States as a consequence for weaker demand in China.
There is some optimism that prices will make a recovery in July. Some exporters say they already have orders for the month at higher prices than will be offered in June and are not expressing huge concern at present, having factored in a fall after the high prices seen so far this year.
The domestic mills are facing something of a quandary. They are expected to reduce the prices but the extent of falls is unclear, particularly as there is the potential for the export market to recover.
Plastics
On the plastics side there is a definite cooling of activity with a reluctance by some traders to do business. Estimates are that prices have fallen in China by as much as £150 per tonne, partly because of the abundance of prime polymer at lower prices.
One buyer told letsrecycle.com: “The film sector has definitely been the worst affected but I would have thought that the bottles market would fare better as there is a lot of domestic demand for them. Some companies will roll back their bottle prices as a precaution, you know, just to be safe.”
“It isn't possible to quote a certain price at the moment, it is going to be a marginal decline to start with. If someone tells you that they are selling 98/2 or 95/5 without issue, don't believe it. Steel is also falling away as is cardboard, which were the three that were worst hit 18 months ago. Let's hope it isn't as severe as that, when prime polymers fall though it is never a good thing.”
“Add to that a rise in import duty, the pound has been weak in the exchange – although it is holding up a bit – and China are simply not requiring the same amount of scrap. I would say not to just buy blind at the moment, pay over the odds, and then not be able to shift it because prices slump.”
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