Friday, 20 July 2012

recyclate market volatility, infrastructure and regulation.

Its been a busy week here in the UK for recycling, with the new regulations being laid (before a recessed Parliament) and a bit of a slump in the paper market. Of course all of these things are interconnected and looking at these complex relationships, raises some interesting questions.

China is the major global market for recycled paper and takes around 70% of UK exports, hence any downturn in China will have significant impacts for UK operations. The recent slow down in the global economy and Chinese output has already seen prices fall back for recycled paper and card. Chinese port authorities are now making more checks on incoming materials, which highlights an interesting paradox in the UK waste and recycling industry.

There has been an ongoing debate over the supply of quality recyclate for many years (i.e. should we just go for bulk rather than quality or strive for the highest grade). In the past bulk was satisfactory because it was cheaper to treat/sort to a lowish quality and the price, although not high, was relatively stable. If the market did dip, paper and card would be diverted to EfW or landfill.

With the advent of the revised Waste Framework Directive, this became much more difficult, as waste has to be treated as high up the Waste Hierarchy as possible, meaning that it is not really acceptable to send recyclate to EfW or Landfill. The rWFD also requires that at least 50% of the major recyclate categories are collected separately (to maintain quality) and End of Waste standards are being developed for many materials to provide certainty of the point at which something ceases to be waste.

Reprocessors have already challenged the UK transposition of the directive, which allows for co-mingled collection and separation at an MRF or MBT plant. Issues over quality have persisted, including export of unsuitable and unsorted materials, leading to expensive repatriation of waste. In the light of this challenge Defra amended the regulations and the EU issued guidance on meeting this section of the directive.

In effect the EU guidance will permit co-collection, where it is not practical to collect separately, it does however, reiterate the need for the quality to be the same as if it were collected separately, It should also be borne in mind that End of Waste criteria are being set for the major recyclate streams, which will have to be met and which, are likely to be quite stringent (in accordance with maximising value through quality and the overall life cycle of the materials).

Given our historic preference for quantity over quality, there is more than just a behavioural and perceptual barrier to overcome, there is an urgent need for investment in capacity if we are to continue sorting recyclate that will meet the stringent standards that will be required (and enforced also through importing states and reprocessors). It will also probably be seen that a greater price differential will emerge between the best quality and those of a lower standard. It is unlikely however, that we will see that investment if there continues to be a flat market and uncertainty over meeting quality standards.

For my money, I still think it is better to invest in separate collection and simplify the treatment and storage, however because many services are tied into long term contracts, some of which will be PFI's for MBT plant, that could be difficult. I would also bet on the JR still being heard, as the amended regulation may not be specific enough on how the quality standards will implemented and monitored, watch this space as they say.

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