Recycled Materials: Navigating Globally Changing Markets During COVID-19

The COVID–19 pandemic has initiated waves of disruption to supply chains worldwide. This can be seen clearly across sectors where the flow of recycled materials from producer to consumer to waste collection facilities have been disrupted, creating financial and market uncertainty. Companies that use recycled materials in their products will need to find new ways to navigate this changing landscape, adapting to both the current and forecasted alterations to recycled material flows and recycling supply chains.

The current global recycling situation

Globally, we are seeing out-of-sync supply and demand of recycled materials as countries open and close markets and waste collection and processing facilities in accordance with the progression of the pandemic.

The World Economic Forum states that over the past four decades global manufacturing networks have been reorganised into what is known as ‘global value chains’. This is where raw materials and intermediate goods are moved across country borders multiple times in complex international assembly lines. The international nature of many of these value chains means that companies are now vulnerable to shocks in material flow markets as the pandemic progresses across the world. Even as we begin to recover from the pandemic, long-term consequences are forecasted.

Current supply chain pressure points

Reduced production of materials

As some business activities are restricted and the economy slows, the volume of certain materials available for reprocessing reduces, causing a shortage of recycled materials. With industrial production in China falling by 13.5% in January and February, compared with the previous year, there was a steep decline of goods imported into Europe causing subsequent supply chain disruptions.

Other examples include:

• Waste wood arisings have decreased dramatically, in the UK falling by 85-90% during the pandemic.
• Plastic recycling arisings from the industrial sector have nearly vanished in countries with business restrictions.
• Wastepaper has decreased with the widespread closure of offices. Within the UK, this has been partly offset by an increase from supermarkets, but arisings have still reduced overall.

Decreased mobility across borders

With countries implementing protectionist measures to slow/prevent the transmission of COVID-19, material shortages are being felt in countries which rely on recycled material imports to meet demand. This reduction in trade is particularly apparent as the pandemic has hit global economic hubs such as Europe, China and the US. In addition, the decline in manufacturing is causing the following contractions in the flow of materials internationally:

• In China, the most significant declines in material flows (both imports and exports) can be seen with textiles and electronic components.
• The mobility of some materials, such as in plastic recycling supply chains, has been maintained due to the ability to move across borders enabling markets to adapt partially to changes in supply and demand across countries.

Changing demand for materials

The slowdown, and in some areas complete stop, of manufacturing has caused an overall drop in demand for recycled materials causing consequences up and down global value chains. In contrast, for some materials such as cardboard, where the material is still critical for packaging, the overall demand has stayed the same or even increased.

Prices for some materials are fluctuating depending on the changing supply and demand for each material. For example, the price of cardboard has increased due to increased demand and reduced supply. The increased household supply of cardboard has not offset the decreased supply of cardboard from commercial operations.

Reduced collection and processing capacity

Despite increased material supplies from households during lockdowns, the global recycling sector in general has suffered as recycling industries have been forced to slow or even stop business due to staff reductions and social distancing regulations leading to decreased recycling collections.

This has been further intensified in some countries by the closure of Household Waste Recycling Centres (HWRCs) and scrapyards, impacting the availability of materials such as wood and metal.

Changes in waste composition

Many countries in lockdown have seen an increase in household/local collections and a decrease in commercial collections, thus altering the composition of recyclable materials available for reprocessing. Restrictions in waste collection and processing centres and the prioritisation of certain waste streams has further changed the composition of waste collected for reprocessing.

Anticipated long-term effects

As economies begin to restart, we anticipate the following issues with recycled materials to remain.

• A shortfall of supply

As manufacturing operations reopen, we are likely to see insufficient supplies of recycled materials. The Recycling Association amongst other industry bodies have warned of the potential for a large global shortage of fibre (from used cardboard and paper) due to slowed commercial operations and reduced household collections.

European countries such as Spain and Germany, who are either ahead of the UK on the pandemic curve or who have experienced a lower infection rate, are now looking to source materials such as cardboard from the UK to meet their demand for recycled materials.

In the longer term, certain material markets will be less able to recover quickly from these initial market shocks caused by the pandemic. One example of this is the wood sector in the northern hemisphere which relies on stockpiling during the summer months to meet demand later in the year.

• Price volatility

For some markets, ongoing price volatility is predicted due to fluctuating supply and demand. For example, there are complex market forces within the plastic sector with the oil market effecting the production and demand of virgin and recycled plastic differently.

• Reduced exports

The continuation of supply chains will depend on individual countries’ capabilities to import and export materials, and the length and extent of protectionist measures. One example of this is, as the UK exports 70% of produced metal, the pandemic has presented logistical problems with exporting to countries in different stages of the pandemic.

• Supply chain

If the pandemic leads to an economic crash and recession, production levels are likely to fall, placing less stress on recycled material supply in terms of volume but creating reductions in prices.

Some material markets are more difficult to predict than others for example in plastic recycling supply chains which experience complex market forces affecting different polymers. The price of oil, which is currently at the lowest levels in 20 years, is likely to drive production of cheap virgin plastics which may make recycled plastic resins less competitive; however, some plastics such as PET, usually found in food and beverage packaging, are disconnected from the price of virgin plastic.

Price drops, caused by decreasing demand, risk the stopping of supply chains completely especially as the prolonged stagnation of markets may lead to businesses becoming financially unviable and unable to recover. This is particularly the case for material markets with a lack of diversity in their customer base. One example is aluminium, which has seen a large drop in demand as the market is highly dependent on demand from the automotive industry.

• Changing demand

The demand for plastic packaging is expected to remain the same or even increase due to heightened hygiene concerns moving consumers to adapt their consumption habits, however upcoming legislation in the UK will mean that this is unlikely to persist in the long-term.