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Coping with the toughest market conditions in history
Coping with the toughest market conditions in history – by Graeme Coombs, TGM Managing Director
2012 has been a year of great change in the paper recycling industry. From good turnover, good margins and increasing volumes to conditions that are actually worse than October 2008 when the market was deemed to have completely crashed!
The reasons are many and varied. The Global financial meltdown is the underlying reason, and it has affected different Countries and Continents in approximately the same way.
When China came into the RCP market in around 2000, the whole industry breathed a sigh of relief, our future was assured. The emerging Super Power’s growth levels were extraordinary and their export targets were even more incredible. As every domestic produce such as computers, TV’s, mobile phones, washing machines etc come in a CARDBOARD BOX, the demand for board was immense. Instead of importing this board as they had done in small quantities in previous decades, they replaced the tiny technically poor paper and board mills with super mills the likes of which the World had never seen. These mills hunger (demand) for RCP outstripped available supplies and a shortage was created. Prices rocketed and every recycler on the Planet made profits.
In late 2008 at the beginning of the credit crunch, the Asian market, which now included Indonesia, India, Korea, Vietnam and not just China, panicked at what was happening in the Banks of the West and simply stopped buying. It took them three months to realise that there had not been a dramatic change in their order books and the market recovered quickly as the Asians began to buy once more.
Europe at this stage, was little affected by the credit crunch, and its mills actually competed strongly with Asia for available volume. This just pushed the demand and the prices higher.
Now wind forward to 2012 where the “double dip” recession has hit. (Had the original recession ever ceased??) The perceived slump in demand is upon us. Global domestic spend has reduced alarmingly, people have less disposable income, so the electrical products mentioned earlier are not being bought. The result is that not so many cardboard boxes are required = less demand for RCP = lower prices. This is just the board market! Newsprint demand in this digital age is reducing at 20% per annum. So why are Governments so intent on increasing recycling rates?
Unfortunately, costs are still rising; fuel, energy, rates, insurances and consumables are rocketing at the same time as our income is under huge pressure. Profitability is disappearing fast.
Why am I still in this industry, amid all of the doom and gloom? I’m still in this industry because I am a committed waste paper person, man and boy. I care passionately about this industry and the greater good it does for the environment. I believe passionately that there are still ways that we can improve what we do and better serve our customers and this is a big motivator. Even in the midst of these terrible trading conditions I remain confident that with the co-operation and understanding of our customers we can create a fair pricing structure that will enable us to retain our excellent service levels and sustain us and till growth and prosperity return.
The recycling industry, is, as the word implies a cycle. With less product demand, a reduction in packaging and with low prices leading to greatly reduced recovering activity, in time there will be a lot less RCP to go round. The World economies will eventually recover and with them the demand for RCP will recommence. Mills will have closed their doors yes. But others which are faster, more productive and less labour orientated will have opened, new machines that have, until now, never produced a kilo of paper or board will finally be switched on and the “daddy” of all shortages in recovered fibre will be witnessed.
For more insights, follow Graeme on Twitter! – @GDTCoombs