I read in the press recently that new and ambitious recycling targets are being suggested for the European Union member states (which for now at least includes the UK) which will compel us all to hit 70% recycling of municipal waste by 2030 an increase from the initial 50% we are scheduled to hit by 2020 only 6 short years away! Talk can often be cheap and it is easy to band figures like this around for political sound-bites, however if we are to believe the sincerity of the much lauded circular economy then we simply must look to reduce landfill dependence as much as possible and lofty recycling targets are an effective way of doing this, I am sure we will agree. Having traded quite a bit of material and from monitoring the trends in Europe, many of the countries there such as Austria and Germany, are already as good as there and have far less work to do to hit 70%. The UK and Ireland on the other hand, have quite a bit more work to do – with the UK being at about 40% (although some parts are performing better than others) this represents a further increase of 30% in 15 years to hit 70%. Naturally, the methods of achieving this are on the table for robust debate and in my opinion, we need a blend of carrot and stick for us to get to the promised land. For example, tax / VAT incentives for purchasing goods made from certain percentages of recovered materials would boost both the recovered material collection and processing sectors, while such a move would understandably be opposed from the competing virgin materials sectors! A robust review of the recycling targets for the packaging regulations would also provide a much needed assist to the PRN values at least in the short term again incentivising both collection and processing stakeholders as the system did upon its initial introduction (papers opened at £20 per ton when the regulations were introduced in the late 90s). As well as the juicy carrot however, realistically we also need the big stick as the motivation to meet these targets as would getting 9 points on your licence would make you comply with every speed warning sign, so the recycling targets need consequences in the event of non-compliance and these penalties would undoubtedly cascade down to those feeding the furnace me and you! To compliment the incentives of potential VAT initiatives and increased PRN revenues, there would need to be decisive action on landfill taxes which would in my opinion mean above inflation increases to make waste segregation pay for both public and private sectors alike. Common sense would also determine that certain materials be banned from landfill disposal altogether- although which materials exactly would be subject to many a lively discussion. From my own perspective on the paper side, there is no reason these days why it is acceptable for recovered paper to be sent for landfill disposal and we would welcome a gradual introduction of such a ban.
Assuming all the initiatives suggested are implemented where does that leave the paper market? The UK already has a near 50% dependence on exports for its recovered paper consumption requirements and it is a logical conclusion that export would have an even bigger part to play in providing the long-term markets for quality recovered paper grades. This is compounded by the very recent news that UPM Shotton will permanently close a machine at its mill in North Wales sometime in early 2015. This is a big development for the de-ink sector which will definitely have both short and long-term market implications. From the press releases to date, the move is simply an adaption to a long-term over capacity in the publication paper market which has driven finished paper prices and related margins down, while the feedstock recovered paper prices have remained relatively stable a double whammy for the sector. The short term effect should be a softening of the de-ink market which would be of concern to local authorities, especially as paper is usually a regular revenue stream. The long-term implications as always are not so clear, however markets tend to correct themselves over time and by experience, someone somewhere always takes up the slack. This development will now take about 15% of the UK de-ink capacity out of the market (about 250,000 tons per annum) in one swoop and it would not be unrealistic to surmise that further market correction will be required in the medium to long term as newspaper circulations and sales continue to erode.
In the rest of the market, it’s a strange situation where demand for tissue and high end grades are high but prices remain stable and demand for OCC and mixed is at best luke-warm, but again prices are stable (-ish!) Looking at the anecdotal evidence to this, while packaging grade demand is low, relative volumes from source are also low which is bringing a relative balance to proceedings speaking to one source, while the things seem to be on the up and up and are far better than 3-4 years ago, collection volumes are sluggish for this time of year. One explanation proffered for this is the new CPC qualification for HGV drivers apparently this has resulted in a shortage of drivers and in such cases, waste related driving vacancies can be relegated while the more glamorous positions tend to attract the majority of the best drivers due to better terms and the easier nature of the work. This problem may also become more acute as Christmas approaches and demand for good drivers increases to cope with the increased movement of goods while this may result in some localised service issues for waste collectors and their customers, the potential low collection volumes may be a positive on prices as short-term supply is affected coupled with the re-opening of a board machine in the UK in early 2015, the short-term outlook for OCC grades (in the UK particularly) may be bright. On the potential downside however (there is always a downside) short-term export opportunities may be hit by some uncertainty surrounding the renewal of Chinese paper mills import licences some administrative issues in China has caused some smaller mills to vanish from the market entirely while the issues were sorted out, no-one can say for sure when this will be rectified and the resulting uncertainty is making both collectors and buyers of OCC for export a little nervous to say the least! On the mixed paper side of things, the markets are very slow with the previous incentive of upgrading to better grades such as OCC and news and pams becoming far less attractive as the price disparity between the grades reduces, better quality material is still moving (slowly) as mills now pick and choose their sources however at prices that more often than not, does not reflect the true value of the material.
As I write, I am unsure whether you will read this before or after the festive season.. regardless, I wish you all a Happy Christmas and a prosperous New Year, I hope you have found the market reports interesting and look forward to continuing with these in 2015!
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