Guidance from WRAP suggests councils should be prepared to consider taking on more risk when considering their strategies for recycled materials sales.
While it recognises that some local authorities may want to engage in fixed-price contracts for materials to allow for some budget security, it also suggests that councils could be losing huge sums of money from this approach.
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The Approaches to the marketing of dry recyclables by local authorities guidance says: “Obtaining fixed prices may result in the authority losing a significant opportunity for income generation, for example, when fixing prices before a period of increase in material values. When confidence in markets is low, contractors will reflect this by pricing against the risk of a downturn in a fixed price contract, so in practice that downside risk is simply priced in and paid whatever the market actually does…
“…Authorities accept that some services, such as winter gritting, are going to be susceptible to unpredictable cost variations due to a changing demand for the service.
“Arguably, the same view should be applied to materials trading, because taking the fixed price approach often leads to less overall income in the longer term. By considering material sales revenue in the context of a local authority’s overall treasury management strategy, it may be possible for more commercial risk to be taken, to the long-term benefit of the authority.”
The guidance warns that the point in time in which a council agrees the sale of recyclable materials will have a bearing on any fixed price it can get as market prices fluctuate over time.
It adds: “As much as you may try to forecast future prices, there is always an element of luck involved in securing a fixed price that turns out to represent good value for the duration of the contract.”
View the full guidance at http://www.wrap.org.uk/content/approaches-marketing-dry-recyclables-local-authorities