Has the market reached rock bottom as yet?
There are some in the market who think it has, while some aren’t so sure. Certainly, in the paper market, there is a view that OCC will improve over the coming weeks as purchasing patterns increase again following Chinese New Year last week.
But for mixed paper, the picture is a bit more uncertain, and it will depend on the capacity of the market to absorb the material. At the moment, it looks like the market is full up with mixed paper.
For plastics, the situation seems relatively stable at the moment, although film grades continues to struggle. However, there are those who think the market has hit its lowest point, and will tumble along the bottom for a while.
And the maths seems to agree.
REB Forecast prices
Although the dollar strengthened against the pound last week, reaching $1.40 on Friday from $1.38 a week before, and making UK material slightly more expensive, there is potential for it to get event stronger this week depending on events.
First up, Cabinet Minister’s including Brexit Secretary David Davis and International Trade Secretary Liam Fox are expected to give speeches on potential Brexit outcomes this week. This could be crucial to how the market responds. But the main focus will be on a speech that Prime Minister Theresa May is expected to give.
“For sterling and UK focused investors more broadly, that speech will be key in shaping sentiment amid rapidly waning optimism that the UK will be able to reach a transitional arrangement deal,” said Investec economist Victoria Clarke.
Again, if the market sees the speech positively, expect the pound to rise against the dollar.
On Wednesday, UK average earnings growth for the three-months to January will be published. If this exceeds forecasts of 2.4% growth over the same period last year, then this is likely to put more pressure on interest rate rises, and will also push the pound higher.
Unemployment data published on the same day is expected to stay broadly the same, suggesting this will not drag the pound down either.
In the US, minutes from its January meeting will be published this week that are expected to show that interest rates will rise aggressively this year. This already appears to be priced into currency markets, but any suggestion that these aggressive interest rate rises will not occur, is likely to boost the pound over the dollar.
However, with the publication of the IHS Markit Household Finance Index this morning, it appears that UK shoppers are reining in spending. The index fell from 42.9 in January to 42.2 in February, the lowest level since July. Similar data could put off the prospect of a UK interest rate rise.
IHS Markit associate director Tim Moore said: “In response to squeezed incomes and concerns about the financial outlook, households appear to have reined in spending, particularly on big ticket items.”
This could obviously be of concern for recyclers, as it could mean there is less packaging material around. Although if it is big ticket items, it could restrict the supply of film, which might benefit a tough market.
Looking at the week ahead for the pound, the market seems to think that the pound will largely be in a similar position to where it was at the end of last week. While it seems there is more potential for upside rises in the pound, currency traders seem to think there isn’t too much more momentum for the pound to go much higher.
For recyclers buying for March, at least they would know where they stand if the pound stays flat.
Otherwise, the data does seem to suggest there is some upside potential for recyclate prices, even if that upside is minor.
Shipping prices remain relatively stable, although the market is waiting to see if there will be any disruption to shipping as a result of Chinese New Year. Traditionally, ships are stranded in China, or containers suddenly become harder to get hold of in the weeks after the festival. But this year might be different due to an improving picture for major routes, but falls in demand for backhaul routes.
The broader commodity complex suggests there could be some upside. The S&P GSCI index of key commodities has eased back in recent weeks, without really dropping too far. This suggests there could be some potential growth if global economic data proves to be good, especially as most economies appear to be doing well. Manufacturing data has also continued to be strong in recent months, and if this continues, then there has to be an upside on commodity demand.
Overall, the picture for the week ahead looks broadly stable with upside pressures and downside pressures looking like they will largely cancel each other out.
For the month ahead, the picture looks pretty much the same and prices look set to be static.
Of course, if the Chinese were to suddenly ease import restrictions, then that could all change. For the time being, it looks like the market is pretty much at the bottom and is set to stay there.