Financial crisis starts to bite in recycling sector

The impact of the economic downturn's effect on the recycling and waste management sector is gathering pace, writes Steve Eminton.

We have to cover ever increasing collection and running costs and if prices fall we will have to put up our collection charges 

 
Reuben Bolton, IWPPA 

A picture was painted this week of a slowing in waste and recycling volumes, the price paid for Old KLS (used cardboard) heading south, metal prices tumbling and used newspaper values also falling.

Chinese orders for used cardboard have led to UK mills implementing cuts in the price paid for material or planning these for later in the month. Prices are still to be finalised for October but a fall from £65 per tonne for Old KLS in the UK to £60 or £55 during the month seems certain and this could fall even lower. This comes as many merchants are finding it hard to secure Chinese orders for material where order prices have dropped to the mid or low sixties.

Skip-hire firms have told letsrecycle.com that they are also seeing less waste throughput. One Nottinghamshire firm, which did not wish to be identified, said: “We are considering having to lay drivers off. In the mornings we have less tickets for collections because small building projects have almost stopped and other work is down which means we only have orders until lunchtime.”

A number of recovered paper merchants are also pointing to slowing volumes of arisings although, as yet, these are not said to be down by a large amount. One industry figure said: “We would expect arisings to increase soon ahead of Christmas but this week our collections showed a reduction in cardboard collections which we hadn't expected.”

And, within the UK's waste management sector, Jean-Dominique Mallet, chief executive of Veolia Environmental Services, has told Resource Management & Recovery magazine that “recession is a word used more and more, and when you have a recession there is a reduction in waste”, adding that the financial crisis was making the world “a bit more complicated”.

Three years

One of the world's paper recycling and manufacturing giants, China's Nine Dragons Paper, today published its annual results and talked of consolidation, with the economic recovery being two to three years away.

A statement issued in Hong Kong by Nine Dragons said: “Foreseeing the economic downturns will be recovered in two to three years' time, the Group will equip itself to be well-prepared for rebound on market demand by allocating more resources on consolidating the existing business.”

In the UK, Nine Dragons is a major purchaser of used cardboard and mixed paper through its associate, Manchester-based ACN Europe.

Metals

In the metals sector, where prices for non-ferrous and ferrous grades have fallen sharply, metal recycling giant EMR, headquartered in Warrington and with an international presence in countries including the United States, has taken the unprecedented step of issuing a statement to quash rumours about the health of the company.

In particular, word had spread around the UK that the company's American business was in financial difficulties – the company has strongly denied this (see letsrecycle.com story).

PFI

On the financial front, several major Public Finance Initiative (PFI) contracts are said to be suffering delays because of the economic crisis, including the £1 billion Viridor award for Greater Manchester and the Shanks contract with Cumbria. Other waste management companies are concerned about potential delays in PFI contracts currently being prequalified or tendered.

Paper sector

With the value of recovered paper a major factor in municipal and commercial recycling work, its performance impacts widely on the sector. letsrecycle.com has gathered together a number of opinions this week.

Wade Schuetzeberg, managing director of ACN Europe, which takes substantial volumes of cardboard and mixed paper from the UK, through some major and smaller waste firms and other sources, said that the laws of gravity could not be defied.

He said: “Everybody is subject to the law of gravity, not only China. Europe, UK, the US have all seen the downturn for several months. People have to adjust to a realistic level. The prices we are seeing are compared to the level of economic activity.”

Mr Schuetzeberg said that while ACN was not out of the UK market, orders for extra tonnage were unlikely to be placed as the company “continued to support its existing suppliers”. The company also had strength, he emphasised, because it had a “very good alignment with Nine Dragons” and would ship what the mills needed weekly on a regular basis.

The other main Chinese buyer of material in the UK, Lee and Man, said it is not buying “weekly tonnages” and it is thought that it is currently purchasing much lower volumes than normal and has machines taking downtime. Another factor is that there is a preference of American material which is usually of higher quality – prices in the US are falling and further falls there will put more pressure on UK domestic and export prices.

Landfill warning

Reuben Bolton of Ipswich-based Bolton Brothers and president of the Independent Waste Paper Processors Association, warned that, should the cardboard price fall substantially, this would have a knock-on effect of the material going to landfill. “We need prices to stay up to get the recovery rates up. But we have to cover ever increasing collection and running costs and if prices fall we will have to put up our collection charges and stores and customers will start putting the material into the general waste bin.”

Brian Perry, of Perrys Recycling, one of the UK's most experienced paper recyclers, told letsrecycle.com: “I hope public confidence returns. This is an adjustment in the financial world. What I see is that demand for material will fall in line with supply orders. There is already less material available. Some mills will hold off from buying, but they can't hold off for too long as they do not today hold as large stocks as they have in the past.”

Newspapers

The used newspapers sector is also seeing price falls. Prices paid for used newspapers in the past few months have soared to as much as £125 per tonne but are now falling sharply to about £90-95 per tonne and could reduce further.

India has been a strong player in the market but its newsprint manufacturers are now complaining of the high costs. While the country is seeing a 20% increase in demand for newspapers this year, covering the costs is putting pressure on the companies.

Ron Humphries, managing director of Abitibi-Bowater Recycling Europe, the former Cheshire Recycling based in Ellesmere Port, said: “The market price has been vastly inflated since the middle of the summer. There is a 6% fall in the number of newspapers in the UK marketplace so there is less material around – we are noticing the reductions in our collection boxes. The saving grace is that we still have a relatively low participation rate so every 1% growth in recovery rates will help.”

Mr Humphries added that the sector had seen strong Chinese demand in the second quarter of 2008 and strong Indian demand in the third quarter. But, he confirmed: “The global economic downturn is beginning to have an impact and we are seeing paper machines taking down times or idling.”

Matthew Hoare, managing director of Shropshire-based Newport Paper which largely supplies used newspapers and magazines to Stora Enso on the Continent, said: “The last 12 months have overheated and a lot of people have been playing at being a paper merchant. A calm down is to be expected and the prices this year have been unsustainable for all of the mills.”

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