Global outlook not great

I was at a conference on secondary commodity markets on Tuesday at which Ross Strachan from Capital Economics gave quite an interesting overview of their outlook for the global economy.

Essentially, things aren't looking particularly bright in their view. Europe is heading towards disaster and the ultimate break-up of the Euro, while China is slowing down too. There are some slightly better signs from the US (if policy makers there are able to agree a budget deal) but overall, it looks to them as though the global economy is at best heading sideways for a good while to come.

I tend to agree with their outlook (although I am not yet convinced that the Euro will break up). I would also add that forthcoming banking regulations are going to be an additional constraint on growth by restricting new investment.

What does this mean for the waste sector? Operators are already suffering extremely tough times, with waste volumes and recyclate prices down on previous highs. A faltering macroeconomic recovery will continue to squeeze the sector at both ends with operators potentially suffering lower gate fees at the front end as they chase lower volumes and lower offtake revenues for materials at the back.

In the medium term there may be some respite for integrated businesses as increasing moves into the waste-to-energy space coincide with policy designed to drive up energy prices, thereby helping to support offtake revenues in that area.

But in the meantime, its likely to remain tough going. MRF gate fees tend to be sticky relative to prices of secondary commodities and if some recyclers haven't properly managed their recyclate price risk then they could find themselves struggling in the near term.