General Review
The single most influential factor for the early part of 2012 is the Chinese Governments announcement of a $9 billion investment in its own SME sector to combat the ailing export market. The Chinese Government cannot afford to let its growth decline for socio economic reasons and as such it has to find an alternative growth strategy to export while Europe and America struggle to come out of recession.
This investment will have the impact of stimulating growth and will once again support the demand for recovered materials. It is unlikely that this will have a stimulative effect of material generation but should certainly provide sufficient impetus to prevent a complete collapse in demand.
Paper and Board
The prices really have been too high for some period of time now and it could only be a matter of time before they drop back. Some people are suggesting that it will be as bad as 2008 but this is unlikely as the overall demand is still too strong. October is always the time of year when mill order books decline and it is also the start of an increase in material supply as the shops start to sell items for Christmas. There will be an increase in demand as we head into December to ensure Asian mills have sufficient supply to see them through the Chinese New year shut down, but this will be short lived and demand will again be poor in the first part of 2012.
This time around the Asian buyers are managing the downturn and are clearly playing off the European and American volumes to keep prices down. In the New Year we can expect to see prices 30% below where they were in September 2010 and this is I suspect likely to stay until the summer of 2012.
Growth in Asia and the USA will offset the recession in Europe and will stave off a complete collapse in material prices. If Asia and the US do go into recession you can expect the market prices to reduce quite substantially.
Metals
Over the past couple of months we have seen reductions in both ferrous and non ferrous prices, particularly non ferrous. These prices will also go down again as we go into December but both ferrous and non ferrous forward predictions are that prices will rise again in the New Year.
The Indian market is still the biggest driver and the recent festival of Diwali has halted supply which has also put downward pressure on metals pricing.
Most of the commodity forecasters are predicting a relatively stable metal market over the next few years and although there may be some local downward pressure on price this market should remain strong for the medium to long term.
Plastics
The plastics market is so closely linked to the price of oil that as crude prices start to decline through 2012 we will see a downward pressure on price. In a bid to halt supply, the Chinese have put a $1000 per container tax on imports of recovered plastic into Hong Kong, which has pushed supply back into Europe and is putting downward pressure on prices. However, this tax is set to reduce from January and we should again start to see – certainly in the first part of 2012 – some easing of supply.
There has been so much investment in the bottle sector in the UK in recent years that supply will not be an issue but price will decline as a result of the bumper crop of cotton in Asia. The Asian buyers prefer natural fibres to polyester for clothing and with an abundance of cheap cotton now available, demand for PET will drop significantly in 2012.
The market for clear plastic will also hold up but the demand for lower grade coloured plastic film and mixed rigid plastic will depend upon the level of import duty imposed by the Chinese market.
Outlook
Overall 2012 will likely show an average price reduction of 20% year on year and those that are expecting a similar bounce back to that of 2008 will be disappointed as the economic circumstances are so very different. In 2008 the market slumped on the back of a financial crisis, this time the market reduction is more a reflection of general world economic conditions.
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