Tuesday, April 14, 2015

Low Oil Prices Hurt Recycling More than Renewables

It has been widely reported that low oil prices hurt renewable energy while this point may be overstated it appears clear that falling fossil fuel prices are wreaking havoc on the recycling industry.

Many predicted that the gravitational pull of fossil fuels will drag down renewables. There does appear to be some merit to this prediction as renewable energy stocks have declined alongside oil prices.

As of the start of this year the value of renewable energy and cleantech companies on the TSX had already declined 12 percent. Some have interpreted this as a buying opportunity. The performance of a company like First Solar (FSLR) would bear out this interpretation. FSLR lost around 40 percent of its value as oil started to cave. It bottoming out in the middle of January only to rebound at the end of February.

In the long haul most pundits agree that renewables look good while concerns about carbon budgets, and stranded assets are destined to make fossil fuels volatile. Further governments and corporations can be expected to continue to invest in renewables.

Low oil prices may slow the growth of renewables but it will not stop them. However the impact on recyclers may be more profound.

The lower price of oil translates to a lower price for plastics. This means that it is less expensive for companies to buy virgin plastic than recycled materials. So far plastic prices have fallen by almost one third compared to last year. PET now costs about 63 cents a pound which is 7 cents less than recycled plastic.

While there are some innovative technologies and approaches that can help recyclers, the overall adverse impact of low oil prices on the recycling industry is undeniable.

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