Effects of the current financial situation on the recycling and compliance markets
Little did we know that in October, the effects of the global credit crunch would spill over into the recycling and recovery business with quite such gusto, changing the global balance of material recycling and affecting everyone's view of whether or not the EU Packaging Directive targets would be met. The UK's PRN system (in common with different mechanisms in other parts of Europe) is about to face its toughest test to date.
This update from Valpak gives an overview of:
The current situation
At the time of writing (November 2008) the export markets for recyclable material, particularly those in the Far East on which the UK is highly dependant to meet its recycling and recovery targets, have contracted considerably. Although it's expected that this will be a temporary situation, it is not known how long it will last and it has had considerable impacts back home.
Fears of reduced demand by manufacturers outside the EU, have led them to begin a process of either reducing their existing stocks or ramping down their production levels. This obviously means that they are no longer calling for virtually unlimited supplies of raw materials - of which recyclate is an important part.
Global commodity prices have seen sharp dips in recent weeks, driven by the same mechanism, which has also affected the traditionally strong markets for recyclable steel, aluminium and corrugated card as well as more recent markets for plastic. However, in the meantime, existing levels of consumption of packaged goods in the UK continue virtually unchanged, which means that the amounts of recyclable packaging collected both by local authorities and from commercial and industrial premises remain at high levels.
The PRN Market
Less recycling, and less export of material to be recycled will inevitably result in a reduction in the number of available PRNs. To date this has been reflected in a gradual increase in prices for PRNs in those materials.
Given that 2008 is a critical EU reporting year, both the Government and the EA will be especially keen to send out the message that schemes and producers should be doing everything possible to comply so that the UK as a whole is not found short. Despite that the agency has indicated that it is willing to listen and help those affected by the current situation and do what it can to ease the current difficulties while we wait for the export markets to readjust their stock levels and open up once again.
So, what does this mean for UK stakeholders?
Well, larger schemes like Valpak are still confident that we can meet our obligations from existing long term contracts with UK reprocessors
and by using the relationships that we have developed in the export markets.
Local Authorities and other organisations collecting material to be recycled will also see changes. Once again, those who have entered into long term contracts with reputable service providers like Valpak Recycling Ltd will still be able to see their collected material taken for reprocessing, even though material prices have and will be adjusted to reflect the global commodity markets. However, those relying on spot sales may find it rather more difficult to place their material, and in some cases may discover that they need urgently to find temporary storage material or even be considering landfill. Landfill of recyclables is of course not a realistic option for Local Authorities, hence the EA's recent announcement that it will offer a sympathetic view of longer term material storage.
Other factors affecting packaging recovery
2008 has been the year that the carbon agenda really hit the front pages. The focus from consumers, business and the public sector on all things 'environmental' has been intense, and packaging, seen by many as the easiest and most visible target, has as ever been in the full glare of the spotlight.
In February the UK Sustainable Development Commission and the Prime Ministers Strategy Unit (PMSU) report on Food Matters called on DEFRA to develop a new 'packaging strategy' to help to boost packaging recovery rates and minimise waste. They also called on retailers to cut their use of packaging thereby re-enforcing the objectives of the Courtauld Commitment launched by WRAP and major retailers in 2005.
The initiation of DEFRA's review of its 'packaging strategy' also led indirectly to the setting up of a number of retailer, manufacturer and local government groups under the PRAG banner (Packaging Recycling Action Group). PRAG is split into a number of working groups intending to present policy recommendations to Government on numerous topics under the packaging strategy agenda including packaging design, local authority collection, communication and financing mechanisms for packaging recovery.
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