MRF gate fees down in latest survey

WRAP has published its latest annual survey of gate fees: http://www.wrap.org.uk/content/wrap-gate-fees-report-2012

The main message being picked up is that gate fees at MRFs are down 40% (£15/tonne down to £9/tonne). This of course reflects the fact that the survey was conducted towards the back end of 2011 after a strong period for recyclate prices, which were up on the previous year.

Recycling is a cyclical industry. Recyclate prices are taken from world markets and when these are high, recycling firms can in the short run enjoy what economists refer to as 'super-normal profits'. In competitive recycling markets, entry and exit lead to these super-normal profits being competed away. After a commodity boom though, a higher proportion of recycling firms' total revenues are drawn from recyclate sales than from gate fees at MRFs.

If prices subsequently fall, then some firms may get caught out if they find themselves in a position where their gate fees are 'sticky' relative to recyclate prices. In other words, they are unable to adjust their gate fees (possibly due to contractual arrangements) as rapidly as they need to in order to offset falls in recyclate prices. This could lead to losses and exit from the industry for those firms which haven't managed their price risk as effectively as others.