Chris Collier, commercial director of CK Group comments on the effect of the declining price of crude oil on plastics recycling firms.
If you are in plastic recycling you have got to have been living on the moon to have not noticed the dramatic decline in the price of crude oil over the last six months and the subsequent knock on affect on the demand and prices being paid for recycled plastic.
Apart from a little blip in 2012, the price of crude oil has ranged quite nicely for the last three years, but very quickly over the last six months the price of crude oil has dropped to lows that we have not seen since 2009.
In October 2014, Investment banking group Goldman Sachs forecast that brent crude could fall below $80 a barrel in 2015 due to a global supply glut, a drop in demand for oil and a boom in the supply of shale gas.
This prediction having more than come true, with oil trading at less than $60 a barrel, the plastics recycling industry is bracing itself for a tough year ahead.
At CK Group we are already seeing the impact, as indeed is our supply chain, who face one of the toughest challenges they may ever have had to tackle.
Like the oil producers, faced with supply outstripping demand, the CK Group is having to be very careful what regrind and scrap plastic we buy and ensuring we have markets for onward sale.
As a leading provider of plastic regrind we do have access to a wider market of buyers, but sellers are lining up with plastic they want us to buy and already supply is not being met by demand and regrind has already started to stockpile in some areas. This is not to say we have stopped doing business – far from it – but like our end user customers, we are having to be far more alive on price and ensure quality is as expected.
The situation is not helped by the fact that many of the countries that buy recycled plastic are also in recession. Afraid of having cash tied up in raw material, manufacturers are no longer willing to buy until they have orders to fulfill. When they do buy they have the pick of what the market has to offer and are able to be specific on quality and still drive down the price.
There is clearly a squeeze on all in the chain so all have to buy more prudently.
We predict that 2015 is going to be a tough year, and potentially those that adopt stringent buying criteria and build a solid financial foundation have a chance at riding the storm ahead, but sadly we suspect many will not.
The message we are communicating to our supply chain is to be very focused on quality and reducing likely contaminants that will reduce both the price and appeal of the scrap plastic you have to sell.
Our advice is to baton down the hatches, manage cash flow and overheads very carefully, if able build a cash reserve, and communicate regularly with suppliers and customers.