The plastics industry was welcomed into the new year with rock bottom oil prices and the prospect of a difficult 2015. One segment of the market that is most vulnerable to the tumbling price of virgin material is the recycled plastics industry, because why buy recycled when prime or virgin plastic could be more cost-efficient?
Plastics for recycling
CK Group is one of Europe's largest buyers and sellers of recycled plastics and the business is not one to stick its head in the sand when a dip in oil prices spooks the commodities markets. EPPM quizzed Commercial Director Chris Collier on the impact falling oil prices will have on the recycled plastics industry as a whole, and how CK Group is protecting itself should matters worsen.
"Crude has been dropping heavily for the last six months and we're at a five-year low. Obviously that links directly to prime ... So there is a risk users of recycled could revert back to prime," Collier explained.
Not like 2008
This is bad news for recyclers, but the industry has weathered such storms before. Nevertheless, Collier noted this crisis cannot be likened to the crash of 2008 - a natural comparison for many industry commentators.
"It isn't like 2008 when everybody thought the world was ending. For me the difference is this is directly related to oil. There's consumer confidence in terms of the economy and recessions in some countries and some markets, but the person on the street is still buying cars and white goods. There's no drop in those markets - it's entirely oil-related."
In Europe, many of CK Group's customers have been sitting on their hands waiting to see how low oil prices can go. Indeed, since the dip at new year, prices have adjusted and materials are still moving "if competitive", Collier added.
"All our end customers in the Far East say it's going to go to $40. They have high stocks of materials they bought months ago because it takes that long to ship and clear customs, so there's an awful lot of money at risk because they were struggling to sell it - and when they do they're going to make a loss.
"They do it for survival. They've got to get through this patch and they need use their cash wisely to do it. Secondly, they're being opportunistic. They're saying 'whatever cash I have, the market could potentially continue to fall', so they're keeping that so they can make a one-off, panic sell to make them a little money and get them out of trouble. Markets are stabilising now however, so buyers are back."
Brent
Quality is king
Attitude has shifted in the wake of the oil price crisis, explained Collier, as companies have been stocking or manufacturing plastics to end orders only, holding off from replenishing their stock until an order comes in. This, Collier said, was "almost a vicious circle that served to potentially drive the price down a little further".
"For us, it's all about margin management and keeping in contact with suppliers and customers, but as with every recycler I've ever been involved in, when prices are down and demand is down, quality is king."
He continued: "Good quality materials remain in demand and have markets, it is always the materials 'on the edges' which are affected most."
Collier conceded that prudence is needed in times like these and even one of the largest regrind sellers in Europe has to exercise caution over how it is spending its money.
"We have significant stock, but we started to scale our stock down in November. If we hadn't, I think we'd be in a far worse position. It's as tough for us as it is for many others." He added that adopting this mindset does not necessarily extend to the entire industry.
"Some will, some won't," Collier stated. "I think we are very much at the sharp end. We tend to see things faster and clearer than many others. You get a lot of people who will speculate in these times, who keep on buying, thinking it's a blip and - without wishing ill on anybody - I think those people will have significant financial troubles [this year]."
Care and cash
Collier admitted it was difficult to measure how long CK Group and the rest of the recycled plastics industry would have to be in these emergency measures, but much rests on whether the price of oil slides as far as the magical $40 mark.
"My team in Hong Kong believe oil will go down to $40 a barrel. We hit $40 in early 2009, so what end customers are saying is they're holding the cash until it drops to $40. Until it gets to that psychological barrier or they see stability, they're going to sit on their hands and cash. Europe however is about end markets, orders, stock and correct pricing."
