Is there a “new normal” for materials’ markets?
10 June 2020
There is no doubt that the spread of the coronavirus has caused 2020 to be a turbulent year so far for the waste and recycling sector. Global disruptions to materials’ markets took effect as business activity and trading slowed, firstly in Asia before spreading across to Europe and the US by mid-March. As the UK went into lockdown, commercial collections took the biggest hit with offices, shops and restaurants shutting. 90% of HWRCs closed with restrictions placed on all but ‘essential journeys’. Reprocessors had to adapt to the changing shape of waste, relying heavily on household collections. Many local authorities took the difficult decision to suspend some or all of their food, garden and recycling collections in order to prioritise the disposal of general waste in the wake of reduced staff levels and social distancing measures. Inevitably, a proportion of valuable recyclable material was diverted from the system, either to landfill, or for incineration.
What lies ahead for recycling in the UK
As lockdown restrictions ease and waste services resume, there is optimism that distortions in supply chains will rectify and market conditions will improve. But big questions hang over how long it will take for these systems to recover, and whether there can be a return to ‘normal’. As we assess what the impact of Covid-19 has been on the materials markets we can start to consider what lies ahead for recycling in the UK.
In their latest update, the Bureau of International Recycling (BIR) noted that disruptions to international recycling were lessening as businesses begin to reopen. However, it is likely that demand and supply problems will persist as systems try to find a new equilibrium.
Packaging Recovery Notes (PRNs) have played an important role in keeping systems running, particularly for industries such as paper, card and plastic film, in which recycling would otherwise be unviable. However, maintaining the scheme is a delicate balance; there is a minimum price at which PRNs can be sustained to keep material flowing through the system, while higher prices can put financial strain on obligated businesses. With further instability on the horizon, it now seems like the right time to address inefficiencies in our recycling systems and maximise our performance to ensure the sector remains robust.
Industry leaders believe good quality recyclate will continue to find its end markets, despite difficult selling environments. Many point to the United States as an example, whose higher quality waste cardboard remained the preferred buying choice for Chinese mills in the period leading up to the pandemic. But increasing the quality of recyclate is something that needs to be addressed at each point of the system; from collection to sorting to reprocessing and putting recyclable items back on the market.
There are hopes that the new Extended Producer Responsibility (EPR) system, covering the full costs of collecting and treating material, will provide an injection of cash to UK reprocessing infrastructure. Improvements to performance and technologies at materials recycling facilities (MRFs) will help to separate items further, while advances in chemical recycling could process more difficult materials for future use, in turn allowing for collectors to target a broader range of items.
Challenges with contamination remain a key factor, and at the kerbside this is particularly true of comingled collections. The Resources and Waste Strategy suggests a push for collections which separate glass from paper as part of their improvements for collections consistency, and with support of EPR funding, kerbside sort systems may gain traction as the best and most cost-effective collection methodology.
Ultimately, more must be done to encourage engagement from the general public. One positive we may take from the lockdown is the impact it has had on our buying behaviours. With goods becoming harder to come by, it is starting to look like consumers are taking more notice of what they are purchasing and where it is coming from. We now need to ensure that there is continued recognition for our key workers within the waste and recycling sector, and that true circularity becomes just as important a consideration.
A closer look at some of the key materials markets in early June 2020
Last year was difficult for the paper and card sector as export markets continued to struggle in the aftermath of China’s import ban. Low demand for used cardboard saw prices fall to historically low levels, to £20 per tonne in December, while grades such as mixed paper slipped into below-zero pricing. However, as Covid-19 spread and countries began to impose lockdowns, prices for recovered paper and card rebounded rapidly due to shortages and demand caused by the pandemic.
This included a strong demand for recovered paper to supply the tissue sector as people – somewhat inexplicably – rushed to the supermarkets for toilet paper. As a working from home culture set in, a shortage of office grade paper supplies meant some mills began to turn to used newspaper for feedstock, forcing up the prices for the struggling print industry.
Meanwhile, the value of used cardboard rapidly increased through April as demand for packaging remained high, namely through home deliveries while supply from high street retailers halted. This also led to an increase in the price of mixed papers used within the production of cardboard, which is good news for local authorities and waste collectors. However, this remains a worrying prospect for mills unable to function with low volumes of stock over a prolonged period.
Despite a production slump in the automotive sector, the aluminium cans industry has remained relatively stable throughout the lockdown period, following ongoing demand. 2019 was a record-breaking year for recycling of aluminium packaging in the UK, with a record 116,670 tonnes recycled, including 76% of all beverage cans sold.
Commercial collections of glass saw a significant fall early in the UK’s lockdown period as pubs and restaurants closed. This was quickly followed by a boost in glass from household collections, driven by home cooking and a surge in alcohol sales at the shops. This has had implications across the supply chain as demand for high-quality glass cullet, typically sourced from the hospitality sector, has remained high, driving some manufacturers to switch to virgin materials. Meanwhile, there has been a collapse in demand for lower quality glass used for aggregate, a type usually collected through mixed collections at the kerbside.
Recycled PET achieved double the value of virgin PET towards the end of 2019 as demand grew for companies to use recycled plastics in their products, prompted partially by companies’ commitment to the New Plastics Economy. Then as Covid-19 took hold in April, the price of crude oil dropped to below zero for the first time. This had a knock-on effect on the plastics industry, dragging down the cost of virgin plastics even further.
There are fears that, despite their earlier enthusiasm, manufacturers could switch to the much cheaper virgin materials. This shift may be amplified by increased hygiene fears around Covid-19, which has led to both an expressed view that single-use plastics provide the greatest safety for consumers, as well as a loosening or delaying of restrictions on these products. However, there is hope that the introduction of the government’s plastics packaging tax from April 2022 will provide enough economic incentive for businesses to retain at least 30% recycled content within their products.
Export markets for used clothing closed, through either the direct banning of imports by countries such as Kenya – for fear that textiles could potentially transmit the virus – or through indirect impacts of lockdown measures hindering the onward-selling of stock. As such, the mid-price value for textiles dropped from £130 per tonne in March to just £30 in April and is expected to fall further as charity shops reopen to a surge of donations from householders following lockdown. The Textile Recycling Association has warned that collection operations may remain on hold due to the excessive volumes of stock and lack of a market. Severe strain on the sector may divert many items to energy from waste, while gate fees could be introduced for materials collected from textile banks.
Unsurprisingly, with the closure of HWRCs and restrictions to bulky waste collections, the movement of WEEE through the sector has stalled. Forecasts suggest national recycling targets will not be met as individual schemes across the UK, dealing with their own specialist items, could be slow to restart. There have however been reports that social distancing and controlled flows of traffic through HWRCs have allowed for better monitoring and separation of WEEE items on site.
In short, it looks like volatility is the ‘new normal’ for materials markets for the foreseeable future, and we may need to adapt quickly. But with EPR legislation around the corner and increasing demand for higher quality recyclate from manufacturers, there is hope that momentum around #BuildBackBetter will embrace the waste and recycling sector. And that ultimately, circularity will define the ‘new normal’ we are all striving for.