determinants of recovered plastics and recovered paper prices … britton... · 2019-05-09 ·...
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Determinants of recovered plastics andrecovered paper prices
October 2008
2
Overview
Key relationships in the plastics and paper markets
Stylised models
Risk analysis - scenarios
3
Model schematic: plastics
Oil prices
Raw materials
prices
Virgin plastics variable
costs
Virgin plastics prices
Labour costs
Plastics intensity weighted
IP
Demand for
plastics
Supply of virgin
plastics
GDP
Industrial productio
n
International recovered
plastics prices
China industrial production
China production of plastic products
UK exports of plastic waste to
China
Total UK exports of
plastic waste
UK weather
UK regulation
UK recovered
plastic prices
Plastics – virgin / recovered prices
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0
500
1000
1500
2000
2500
1990Q1 1994Q1 1998Q1 2002Q1 2006Q1
$ / MTUS PET prices
Virgin
Recovered
0
50
100
150
200
250
0
500
1000
1500
2000
2500
1990Q1 1994Q1 1998Q1 2002Q1 2006Q1
$ / barrel$ / MTUS PET prices, oil prices
Virgin
Oil price
Plastics - UK
5
100
120
140
160
180
200
220
240
700
800
900
1000
1100
1200
1300
1400
1500
1600
2004Q1 2005Q1 2006Q1 2007Q1 2008Q1
euro / MTeuro / MTUK HDPE prices
Virgin (lhs)
Recovered (rhs)
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Plastics
Virgin plastic prices determined by costs (crude oil derivatives) in the long run
Price shifted around by demand in the short run
Recovered plastic prices determined by virgin plastic prices in the long run
Price shifted around by production costs, demand, country specific regulations in the short run
Demand and supply-side model –virgin plastics
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Price of virgin plastic
Quantity (tonnage)Q*
P*Long-run supply curve
Short-run supply curve
Downwards-sloping demand curve -substitutes
Horizontal long run supply curve
Upwards sloping short-run supply curve
Demand curve
Demand and supply-side model –recovered plastics
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Price of recovered plastics
Quantity (tonnage)Q*
P*
Long-run supply curve
Downwards-sloping demand curve -substitutes
Vertical long run supply curve – quantity fixed by collection rates
Demand curve shifts as price of virgin plastic changes – substitution into and out of recovered material
Quantity shifts as collection regimes and recycling facilities change
Demand curve
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Model schematic: paper
Paper prices
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0
200
400
600
800
1000
1200
0
50
100
150
200
250
300
350
400
$ / MT$ / MT
Pulp and OCC prices
OCC (lhs)
NBSK (rhs)
400
500
600
700
800
900
1000
50
75
100
125
$ / MT$ / MT
Pulp and conifer prices
Conifer (lhs)
NBSK (rhs)
Paper prices
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50
60
70
80
90
100
110
120
750
800
850
900
950
1000
1050
1100
2000Q1 2002Q1 2004Q1 2006Q1 2008Q1
euro / MTeuro / MT
Office paper and OCC prices, UK
A4 (lhs)
OCC (rhs)
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PaperPulp prices determined by timber prices in the long run: it’s a commodity
Quantity shifts around in response to demand
Recovered paper prices determined by pulp prices in the long run: it’s a substitute for pulp
Quantity shifts around in the short run in response to demand, but in the long run prices do the work, restoring an equilibrium relationship with pulp prices
Consumer paper prices determined by both demand and supply in the long run: relatively few global manufacturers with pricing power
Pulp: supply and demand
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Price of pulp
Quantity (tonnage)Q*
P*Long-run supply curve
Pulp is a global commodity, price shifts with timber costs
Low price elasticity of demand
Long-run demand curve
ONP, OCC supply-side
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Price of recycled paper
Quantity (tonnage)Q*
P*
Long-run supply curve
Short-run supply curve
An increase in demand will cause quantity to increase in the short run
But in the long run it will only cause an increase in the price, crowding out the extra demand
Long-run supply is fixed wrt price, and is driven by consumption of paper and board (sensitive to the price of paper and board) and by collection rates (insensitive to price)
Demand relatively inelastic wrt price
Long-run demand curve
Paper and board supply-side
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Price of paper and board
Quantity (tonnage)Q*
P* Long-run supply curve
Upwards sloping long-run supply curve
Increase in demand will result in higher prices and higher quantities
Implies paper and board is not a global commodity – firms have some market power
Demand fairly elastic wrt price
Long-run demand curve
Plastics – baseline input assumptions
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Oil prices ease and stabilise around $80 per barrelExchange rates remain at their current levelsGlobal growth rates in Industrial Production and GDP recover and then remain close to trend across developed economies, while growth rates ease in developing economies.
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
0
20
40
60
80
100
120
140
1996Q1 1999Q1 2002Q1 2005Q1 2008Q1 2011Q1
annual % change
$ / barrel
Baseline assumptions
Brent crude (lhs)
EU‐15 GDP growth (rhs)
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Scenarios - plasticsStrong China: Chinese demand for plastics increases by 10% relative to the (already strong) growth in the baseline scenario. At the same time, consistent with a wider Chinese boom, global oil prices increase by 20% relative to the baseline scenario and stay higher throughout the forecast period. Because of that, US and European industrial production and GDP growth slow relative to the baseline case.
Global recession: US and EU growth slow sharply (with industrial production down by 2% relative to the baseline scenario). Because of that slowdown, global oil prices fall by 10%, while Chinese GDP growth also slows thanks to weaker demand for Chinese exports.
Oil price fall: oil prices fall rapidly back to around $70pb, as the speculative bubble bursts. At the same time, the dollar strengthens against the euro, recovering to around $1.20. GDP growth benefits in all economies, but particularly in oil-intensive economies like China. Strong demand combined with falling costs pushes demand for plastics up. But quantities increase while prices fall on the virgin side: bad news for the recovered plastics industry.
Global plastics supply shock: global production of plastics increases by 5% relative to thebaseline forecast – and that increase is also reflected in the production of recovered plastics in the UK.
China plastic supply shock: demand for UK recovered plastics from China fall, either because China as a whole slows or, more likely, because China shifts to sourcing more of its recovered plastic domestically. The impact of this shock is felt only by the UK recovered plastics industry: in the charts below, we do not separately identify this scenario except in the case of UK recovered plastics prices.
Virgin PET / HDPE prices, Europe
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1200
1250
1300
1350
1400
1450
1500
1550
1600
1650
1700
2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1
euro/MT Virgin PET prices, Europe
Baseline
Strong China
Global recession
Supply shock
Oil dollar
800
900
1000
1100
1200
1300
1400
1500
1600
2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1
euro/MT Virgin HDPE prices, Europe
Baseline
Strong China
Global recessionSupply shock
Oil dollar
UK recovered plastics prices
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100
120
140
160
180
200
220
240
260
280
2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1
euro/MT Recovered HDPE prices, UK
Baseline
Strong China
Global recessionSupply shock
Oil dollar
China supply
100
120
140
160
180
200
220
240
260
280
2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1
euro/MT Recovered PET prices, UK
Baseline
Strong China
Global recessionSupply shock
Oil dollar
China supply
Paper – baseline input assumptionsThe world economy grows around trend for the whole of the forecast period. The same is true for global demand for paper and board.Within that overall picture, growth in China and other emerging markets is much faster than for the world as a whole, as those economies continue to ‘catch up’ with developed economies in terms of GDP per head. China in particular continues its outperformance of recent years, both across the economy as a whole and in the consumption and production of paper and board.Oil prices ease lower and stabilise around $80 per barrel. Gas prices follow suit.Wages and general prices continue their trends of the last decade.
The dollar appreciates gradually to reach 1.20 to the euro and 1.80 to the pound.
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60
70
80
90
100
110
120
450
500
550
600
650
700
750
800
850
900
2000 2004 2008 2012
$/MT$/MT
US: price of pulp, conifer
Pulp (lhs)
Conifer (rhs)
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Scenarios - paper
Death of the newspaper in the developed world, in which newsprint declines sharply across developed economies, driving down both the supply and demand for ONP.
UK newsprint defies its critics, in which demand for newsprint in the UK increases, thanks in part to the proliferation of free newspapers.
China growth goes into reverse, in which the Chinese economy slows sharply after the Olympic Games, and its demand for paper and board follows suit.
Paperless office almost a reality, in which office demand for paper and board declines sharply over the next twenty years across developed and developing economies
Quality of recovered fibre declines, in which an increased recovery rate driven by higher demand for recovered fibre leads to a decline in the average quality –and therefore price – of that recovered fibre.
Pulp and office paper prices
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450
500
550
600
650
700
750
800
850
2000 2004 2008 2012
euro / MT
Europe: price of pulp (NBSK)
China goes into reverse
UK NP defies critics
Death of NP
Baseline
Paperless Office
Paper Quality
800
850
900
950
1000
1050
2000 2004 2008 2012
euro / MT
Europe: price of office paper
China goes into reverse
UK NP defies critics
Death of NP
Baseline
Paperless Office
Paper Quality
UK recovered paper prices
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25
50
75
100
125
150
175
1995 1999 2003 2007 2011 2015
euro/MT
UK: price of ONP
China goes into reverse
UK NP defies critics
Death of NP
Baseline
Paperless Office
Paper Quality 20
40
60
80
100
120
140
160
180
1995 1999 2003 2007 2011 2015
euro/MT
UK: price of OCC
China goes into reverse
UK NP defies critics
Death of NP
Baseline
Paperless Office
Paper Quality
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ConclusionsRecovered plastics prices in the UK depend on:
In the long run: oil prices and labour costs, and their impact on variable costs in virgin prices, and their impact on international recovered pricesIn the short run: UK weather, Chinese demand, UK regulatory changes
Outlook: UK PET price in the range 150 to 220 euros / tonneUK HDPE price in the range 140 to 200 euros / tonne
Key risks to UK market: slower Chinese growth, lower (higher) oil prices. If oil prices were to fall to $70 per barrel or below, prices would go to the bottom of the range.
Recovered paper prices depend on:Pulp prices in the long run – substitute for pulpPulp depends on timber prices – pulp is a commodityTimber prices reflect demand for paper and board, as well as other sources of demand for timber
Quantity of recovered paper depends on collection rates, not (yet) a function of the price
Outlook: UK ONP price in the range 65 to 120 euros / tonneUK OCC price in the range 60 to 130 euros / tonne
Similarities: Recovered plastics are a substitute for virgin plastics, which are a commodityRecovered paper is a substitute for pulp, which is a commodity