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Market Focus: Packaging

The release of the Q2 figures had cries of joy ringing out, with the potential problem materials, plastic and glass, reporting good supply. Steel managed to close the shortfall in supply that was reported in the Q1.

All other materials reported strong supply with only a slight tightness in aluminium raising eyebrows.

Initial reports of the plastic numbers appeared to show a strong performance with more than 30,000 tonnes being reported. However, this was later reduced to a more conservative 13,000 tonnes.

More surprising was the fact that the Q1 supply figure was reduced from an oversupply position to one of undersupply after the Q2 figure release, dropping from a reported 201,040 tonnes to 191,817 tonnes. One might think it fortunate that the Q1 adjustment was made after news that Q2 had performed so well and created enough slack to alleviate any concerns of undersupply. 

Trading during the summer months saw price soften from £34.50 down to £26.50 on the back of the reported strong supply and weak demand with buyers away from their desks.

The glass market has continued to perform well, with supply in both grades reporting strong levels of performance at the end of Q2.

Glass remelt has continued to produce over and above its required supply with an excess of 43,000 tonnes now available at the end of Q2. This is good news for the overall market as the ‘glass other’ grade continues to struggle after performing poorly in Q1.

The Q2 figures brought some comfort with an oversupply of approximately 16,000 tonnes reported. But given that the market had been playing catch-up from an undersupply position of 28,000 tonnes from Q1, prices have not softened at the same speed as remelt.

For the period June to August we have seen prices fall from £25 to £20 for glass other and from £40 to £27 for glass remelt.

With a smaller spread value between the two notes there are some concerns being voiced regarding the attractiveness of collecting glass for remelt as opposed to aggregate. But in the case of the prn market, as it stands it is the aggregate side that requires the incentive. These concerns can also be misplaced because there are a number of separate factors that come into play when determining the route of recovery, none more so than the demand and price of the processed material.

A strong Q2 return for steel lifted any concerns of undersupply, with volumes reported up 25,000 tonnes on Q1. Many had believed that the absence of a large domestic reprocessor for the first two months had contributed to the short supply reported at the end of the first quarter, and this appeared to be the case with domestic reprocessing level at its highest level since 2011.

Prices, which initially strengthened at the end of Q1 up to a year high of £17, dropped back into single figures in the weeks following the Q2 figure release.

In aluminium there remains some tightness, with Q2 figures showing supply running 2% behind at the midpoint of the year. This has had very little bearing on the market, with prices drifting between £11 and £8.75 for the period and buyers remaining unconcerned due to the lack of demand placed on this market.

All other materials have reported a strong performance and prices have remained rooted at administrative levels. Wood, paper and recovery have all continued to trade at £1.50, £0.85 and £0.75 respectively. Looking forward to the end of the year and beyond, there are many challenges still ahead. In plastic, the 5% target increase will add an additional 100,000 tonnes of demand to next year and may result in prices rallying as buyers target December tonnage in order to take forward.  

Early indications of the WRAP/Valpak Plastic report, due to be released in November, appear to confirm that plastic, as with glass, is overachieving its recovery rates, with the baseline information on which European performance based currently being overestimated by 330,000 tonnes. In glass, concerns have been raised that prices have fallen too low and the market may now struggle to keep disillusioned sellers active, especially on the aggregate side. With a 1% target increase in glass coming in next year, this may address some of those concerns if prices rally.

The removal of protocol tonnage for claiming aluminium PRNs is due to change next year with the loss of up to 16% of the supply.

However, there was good news in that incinerator bottom ash could now be claimed on so, it appears that we are taking away with one hand and giving back with the other.

This year has been regarded as being relatively easy in terms of low prices, and buyers have be not been overly concerned about negative stories of undersupply and have subsequently taken a relaxed view to securing tonnage. It is important that the market understands that regardless of the values on offer, sellers need their support.

Ian Andrews is senior market operator at The Environment Exchange

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