Thousands of tonnes of rubbish collected from household recycling bins may have to be stored in warehouses and former military bases to save them from being dumped after a collapse in prices.

Collection companies and councils are running out of space to store paper, plastic bottles and steel cans because prices are so low that the materials cannot be shifted. Collections of mixed plastics, mixed paper and steel reached record levels in the summer but the “bottom fell out of the market” and they are now worthless. The plunge in prices was caused by a sudden fall in demand for recycled materials, especially from China, as manufacturers reduced their output in line with the global economc downturn.

Local authorities and collection companies are so concerned about the mountains of paper, plastic bottles and cans that they are having to store that they have called for storage regulations to be eased.

Officials from the Environment Agency and the Department for Environment, Food and Rural Affairs are considering changing the regulations on the storage of recycled waste and are expected to issue new guidelines next week. They have been urged to relax the rules limiting the quantity of waste that can be stored and to allow it to be kept in secure warehouses or abandoned military bases and former airfields.

Steve Eminton, of letsrecycle.com, said: “Warehouses around Britain could start to be filled with waste paper, metal and plastic bottles. There's nowhere for these materials to go at the moment. It's rapidly becoming a very serious problem.”

He said that mountains of plastic bottles, paper and steel cans were likely to build up by the end of the year and that the problem would be exacerbated by the Christmas festivities, when a surge of packaging materials and drinks containers would fill recycling bins.

The speed at which prices collapsed has taken the recycling industry and local authorities by surprise and has been made worse because recycling rates are at record levels.

Jane Kennedy, the Environment Minister, will announce this morning that more than 90 per cent of local authorities are meeting or exceeding their household recycling targets. East Lindsey District Council has the highest recycling rate, with 58.4 per cent of all household rubbish, and 18 other authorities exceeded 50 per cent.

Stuart Foster, of Recoup, which advises on plastic recycling, said that mixed plastics had slumped from about £200 a tonne to the point of worthlessness in only four weeks. He was confident, however, that the low value would be temporary as at least three mixed-plastic facilities will open next year, reducing the nation's dependence on Chinese demand.

Mr Foster urged officials to be flexible on the regulations and said that with sensible management the plastic, paper and steel could be stored safely until prices rise. “We think there's light at the end of the tunnel but it's going to take some work,” he said.

Staff at Waste Resources Action Programme (Wrap) and the Local Government Association have begun investigating the extent of the problem.

A spokesman for the Local Government Association said: “The credit crunch has caused prices to fall in the materials and market and clearly this potentially has implications for councils.”

Steve Creed, of Wrap, said: “We think the current extremely low prices are likely to be temporary. Recovered materials are still a valuable resource. They have undergone similar price volatility in the past.”

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