Defra explores hedging to ‘stabilise’ waste market

Posted on 10th October, 2013

The Government will look at the viability of introducing hedging to the market for recovered materials, in a move it said would stabilise prices and reduce the impact of fluctuations in overseas demand.

According to Defra, hedging – the practice of buying and selling commodities on the basis of future prices – would help to provide stability in the market for recovered materials, as goods would be traded through long-term contracts at an agreed level.

Defra also believes that introducing a hedging mechanism into the market would drive the installation of more reprocessing infrastructure and help improve the quality of material produced in the UK.

One industry market analyst commented that he did not believe that hedging would be as widespread a practice among traders as hoped by Defra, stating: “a lot of people shy away from it on the materials market” due to the risk of shrinking profit margins.

He said: “It may not be as prevalent as the Government would like to see, but it is all about strategic planning. I look at the public and private sectors – the private sector will look at where it needs to be in six months in advance, but the public sector can be reactionary.”

The Government is set to establish a working group to review the viability of bringing hedging to the market for waste and resources, which will be headed by WRAP.