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RISING production costs under the Carbon Tax could push the Australian recycling industry’s margins to the brink of unprofitability.
The irony of the Federal government’s new Carbon Tax looms as a painful and unexpected twist for many of the nation’s recyclers.
Wacol-based Resitech Group is among those in the industry that warn the clean energy legislation intended to improve environmental sustainability will spell a slow death for some local recycling companies.
Director Yinon Trieger (pictured) confirms the Carbon Tax has increased electricity costs at his plant by $6900 a month – a 88 per cent hike that cuts into already strained profit margins.
“Australian companies are getting squeezed and there is less money to be made in recycling," he says.
“Some recyclers are finding it hard to keep the costs of manufacturing down, particularly due to the high dollar and more production taking place in China and other Asian countries.
“The proposed Free Trade Agreement with China places very little duty on imported goods, raising questions over how the sector will compete with foreign companies that sometimes pay just $1 an hour to employees."
Trieger says moving operations offshore may be the only option for some recyclers once the full effects of the Carbon Tax take hold.
“It is ironic that parts of the recycling industry could be forced overseas because of a green initiative,” he says.
Trieger predicts local recyclers wanting to continue business in Australia after the July 1 introduction have two choices – downsize through staff redundancies or increase competitiveness with technology.
Resitech has chosen the latter option. The company has invested $1.2 million in a new factory complex, $200,000 on a new transformer and a further $400,000 in energy efficient equipment.
Trieger admits the expenditure is a calculated gamble.
“As business conditions worsen and costs escalate, the natural reaction is to downsize. But we are focusing on new technology and trying to be more versatile to make more money – or at least maintain current profit margins,” he says.
“Because we are at the raw material stage, our profit margins are always being squeezed and sometimes we have to sell recycled resin at levels similar to those seen 20 years ago –$1100 a tonne today versus $900 a tonne in the 1990s.”
Resitech was established in 2001 and employs 12 staff. Its turnover was $3 million in the 2011 financial year when the business was impacted by floods across the state.
The business has attempted to counter the downturn in traditional recycling and manufacturing of building materials by diversifying into pipe-recycling services for the mining industry.
However, not all competing recyclers have adopted such a constructive approach with some major companies opting to permanently close their doors.
“Hastie Group’s engineering business and other big companies that have operated in the industry for up to 15 years have collapsed. It is a very tough time ahead for recyclers,” says Trieger.
“Companies in other sectors put up their prices by 2 to 4 per cent every six months, but we can’t do that. Our customers will not accept it and most of our deals have a 12-month fixed price. A lot of larger companies are reducing prices every year instead of increasing them.”
Resitech is holding talks with the Federal Government to seek Carbon Tax concessions.
Trieger also suggests Australia should adopt a scheme similar to that used in the United Kingdom where businesses are required to purchase “notes" that show waste packaging material was recycled into a new product.
“It would reduce the need for companies to manufacture new products and would encouraging more recycling of waste packaging material,” he says.
“This kept England’s recycling industry alive despite its near economic collapse in the 1990s, when new materials were sold at the same price of recycled goods.”
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