12 August 2008 16:50 [Source: ICIS news]
By Nigel Davis
LONDON (ICIS news)--Mining for gold is one thing but mining for plastics surely another. Yet some are serious about pushing the boundaries of waste recycling.
The huge rise in commodity prices, including virgin plastics, has been the driving force. What not so long ago had little intrinsic value is becoming much more highly prized.
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Price has to be the ultimate driving force for further recycling despite the best intentions of local and national governments.
But recyclate is becoming more widely available and economies of scale are being brought to bear on the industry as post-consumer waste collection shifts up a gear.
Recycling is becoming more attractive as a higher value is put on carbon in all its forms.
Higher energy prices will drive this market and the wider use of recyclate, so there’s the rub. And the market will fluctuate, as does every other, driven in its depths by fundamentals but on the surface by sentiment.
But recyclers believe that high energy prices - and hence relatively high costs for virgin material and recyclate - are here to stay.
“This isn’t a blip any more, it’s a sustained high level price,” says Peter Mills, commercial director with UK-based waste treatement company and recycler New Earth Solutions, speaking of the ramp up in oil-based plastic feedstock and energy prices.
The plastics recycling business is changing with investment in technologies that allow easier sorting of plastics by type.
Clean mixed recycled plastics are selling in the
He foresees a time, perhaps 10 or more years hence, when mining of the UK’s landfill sites for plastics becomes a reality.
Virgin plastics prices have been pushed higher on higher energy costs but raw material and energy cost volatility have caused real problems.
As one industry analyst put it recently, volatility in energy prices is the main characteristic affecting the plastics and feedstock markets.
The issue has become critical and industry pricing mechanisms have been unable to cope adequately, says Societe Generale analyst Sebastian Castelli. Monthly and indeed quarterly mechanisms can fall short in times of such cost volatility.
The recent sharp drop in oil prices also illustrates the potential vulnerability of producer margins in the second half. Initially, they might benefit from lower feedstock and other cots but second half demand growth remains critical.
Producer prices will suffer if demand begins to drop away at a time of relatively lower input costs. The industry could face further real difficulties managing the price/cost/volume relationship.
SocGen’s Castelli, also suggested in his most recent plastics sector report that energy price volatility is here to stay. A long-time commentator on the London Metal Exchange’s plastics futures contracts, he said that a unified pricing mechanism for plastics was essential.
But polymer producers largely remain resistant to change and few actively support the LME’s offering.
Plastics futures trading on the exchange has languished during a period of rapid run-ups in polymer prices and the limited availability of product with which to back trades on the exchange.
But is all that about to change?
The Dubai Multi Commodities Centre (DMCC) and the Dubai Gold and Commodities Exchange (DGCX) expect to launch their Middle East and Asia plastics futures contracts in the fourth quarter of 2008, albeit nine months later than originally planned.
The contracts need adequate support if they are to fly but the
It is curious that plastics futures trading has been so difficult to establish at a time of such raw material and energy cost volatility but producer resistance and a general lack of tradable material has seen to that.
The changing face of the industry, however, particularly the start-up of significant new capacity in the
Higher and more volatile plastics prices will also drive a wider search for material for recycling possibly even from the world's "plastics mines".
($1 = £0.52/€0.67)
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