MRF operators concerned by growth in payment deals

An increasing number of material sorting contracts are now based on contractors paying councils for material rather than local authorities being charged a gate fee, operators of materials recycling facilities have revealed.

And, speaking to letsrecycle.com, some operators of materials recycling facilities (MRFs) voiced concern over what they said was a ludicrous and unsustainable situation where they now had to pay to secure material as a result of a perceived UK MRF sorting over-capacity.

Previously, councils would pay a gate fee to a contractor to sort and sell material on their behalf. However, MRF operators said that, over the past couple of months, the responsibility has fallen onto them to make a payment as they compete for material in an increasingly crowded marketplace.

One MRF operator, who wished to remain anonymous, told letsrecycle.com: It is now all payments, absolutely. I dont think there would be anybody, except small pockets of operators, actually managing to charge a fee.

As far as I am aware, all tenders [for sorting contracts] are going out there and being based on payments rather fees.

It is understood that, in most cases, the MRF operator is able to shoulder the burden of paying for material due to the relatively buoyant nature of the recovered materials market, which means the cost of paying for feedstock can be offset by higher profits in selling it.

The recovered plastics market, for example, is currently experiencing record highs in the PET bottle grade.

MRF gate fees are now definitely tied to commodity values, whatever the commodity value is then it will be reflected in the gate fee, said another MRF operator. We are not having material flowing through the door either though, it is tough out there.

Contracts

In a bid to put a price on the current payments for current sorting deals, one MRF contractor said it varied from contract-to-contract but the general consensus was said to be nothing below between 10 to 15 per tonne of commingled dry recyclables paid by a MRF operator.

He said: I dont know what the average would be but everybody is at a plus [payment] without a shadow of a doubt. We, as a company, arent dealing with anything less than 15 per tonne payment that is for sure.

Meanwhile, another MRF contractor added: We bid for a contract at 10 per tonne, paying that is, and by the time it got decided we were out of the running, so it must have been quite a bit higher. God knows what is being bid.

This is a marked difference from the most recent available data on MRF gates, the WRAP Gate Fees Report for 2010. The report indicated that the average price for a MRF gate fee in 2009 ranged from between -5 to 42 per tonnes with a median of 33 per tonne. This was based on plants taking paper, card, plastic bottles and cans (see letsrecycle.com story).

Paper

The emergence of a handful of paper recycling firms developing MRFs is said to have increased concerns among existing MRF operators about over-capacity.

They are desperate to get the paper and will pay a lot to get it, even if they dont really need the other material that comes with it, said one industry source.

Another MRF operator claimed that both paper recycling firms and new MRF operators were driving the market towards a pay-for-material model in order to feed new plants. He said: They [new operators] would rather have expensive tonnage rather than no tonnage, so they are out there bidding aggressively.

Collapse

Some MRF operators are mindful of sailing too close to the wind and the spectre of the collapse of materials markets at the end of 2008 has been raised. This was linked to unsustainable values being paid for material leading to a sudden drop in commodity prices.

A MRF operator told letsrecycle.com: I think it is ludicrous because a lot of people are agreeing prices for quite a long period of time and the [recovered material] market simply cant stay where it is at the moment.

I think a lot of people are going to find themselves in quite some difficulty if they are stuck to paying quite high prices. It could be very similar to the end of 2008 and quite a lot of people who were operating MRFs then dont want to repeat that.