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Crunch time for the packaging sector

For most, a New Year brings with it hope and a new beginning, for the packaging recovery note (PRN) market it means one thing – Crunch Time. January is the final month of trading before the compliance deadline and this can result in a number of different trading patterns. Where materials have comfortably met their compliance target, it is an opportunity for late buyers to pick up PRN evidence at ‘bargain bin’ prices as sellers dump surplus PRNs into the market to avoid holding unsold evidence at the end of the year. In markets where supply remains tight it becomes a battle of nerves for sellers. Sell too early and they may miss out on last minute, distressed buying and potential price spikes closer to the deadline. Leave it too late and the buying opportunities may be lost. The dynamic of two spot markets trading concurrently gives sellers the option to sell Transitional (December) PRNs into either compliance year, trading in the final two months of the compliance year can become an unpredictable and volatile period.

Despite turbulent trading on the back of late demand in the run up to Christmas, supply issues in the plastic and steel PRN markets now appear to have eased. A downward price curve has been the predominant feature of these markets in recent weeks. However the outcome of this year’s glass market is still far from certain with prices holding up on the back of continued fear of non compliance.

Plastic

Having found stability at £8 per tonne for much of the fourth quarter, plastic finally breached this price in early December, trading down to £7.45. This price fall was short lived though as an influx of late buying coupled with a rise in the 2013 transitional price from £15 to £18 saw the spot 2012 plastic price jump back to double figures, spiking at £11.50. Plastic has subsequently seen a retrace in the price to £6.50 as sellers have looked to close out their 2012 positions. The unpredictable rise and fall of the plastic price in December highlights how prices in tight markets can swing dramatically as the compliance deadline approaches.

Demand for transitional December PRNs remains strong as buyers look to get a head start on their 2013 compliance in what is widely anticipated to be a challenging year for plastic.

Steel / Aluminium

Steel has continued to live up to reputation as 2012’s yoyo material, spiking at £45 again on early trading in December before falling back to £25 at the turn of the year. If no new volume buying emerges now, the steel price looks likely to drift down as the final 2012 demand is met. Light trading occurred in the 2013 forward markets at £25 per tonne. Aluminium prices continued to decline, closing the year at £4.75.

Glass

A Defra statement to the market outlined a firm position on compliance. In this statement they confirmed that glass PRN generation had improved ‘significantly’ at the start of Q4 and that they expect producers and compliance schemes to continue to make all attempts to comply or face appropriate enforcement action.

The glass price has shown little deviation since hitting £75 per tonne in early October. Despite briefly trading up to £78 in mid-December, end of year trading in glass has continued this theme. Whilst most buyers appear to have now met compliance in glass for 2012, it looks like it will go down to the wire. Final Spot offers range from £85 to £120 per tonne.

Paper / Wood / General Recycling

A collapse in the paper and wood price has become synonymous with this period in recent years due to the large oversupply of PRNs in these markets. So much so, that both materials have struggled to recover much value in the transition between compliance years. 2012 was no different, with paper falling to 50p in excellent volume in December. Early trading in January has seen a rebound in the prices with smaller volumes trading up to £1.50 on t2e. Wood prices fell below £1 for the first time in 2012, trading down to 85p.

Tom Rickerby, Senior Market Operator, the Environment Exchange (t2e)

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