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Markets - Packaging: 3 August 2013

As the return of summer blanketed the country in a warm sense of optimism, the release of the second quarter recycling figures finally provided a few rays of sunshine for the PRN market, in what has otherwise been a year of gloomy forecasts.

Like 2012, the run up to the release of the figures was dominated by escalating prices in Glass and Plastic. As Glass Aggregate prices rose to £55, Remelt Glass and Plastic fought it out for the title of the market’s most valuable PRN commodity. Both materials briefly hit a year high of £75 per tonne in July on the back of wide scale shortage fears.  With the majority of traders anticipating weak data in these materials the release of relatively strong figures will come as a both a surprise and a relief.

Plastic reported 165,415 tonnes generated in Q2, up 5% on Q1. This represents a strong result in a quarter that has been dominated by negative market sentiment as a result of China’s operation green fence. In reality the data suggests that Green Fence has had a relatively small impact on the generation of export PERNs. Exports are only down 3.6% (3,455 tonnes) on Q1 and 10% on the 2012 average. The fall in exports appears to have benefited the domestic market where plastic reprocessing is up 19% (11,363 tonnes) on Q1 and 31% on the 2012 average. Whilst the growth in domestic reprocessing will be limited by capacity, the high PRN value appears to be working to help the export market adjust to the new challenges presented by greater quality demands in China. Despite missing its quarterly target by 6000 tonnes, PRN prices fell to £62 per tonne in the Spot market and to £55 across the October and December forward markets following the release of the data.

Buyers will also find some comfort in the improvements to the Glass supply. Glass remelt rose by 8% (boosted by a 61% growth in exports). This rise meant that Remelt hit its quarterly target by over 8000 tonnes. The Remelt spot price reacted to the news by falling 3.5% to £67.50. Glass Aggregate also saw significant gains in Q2, with PRN generation increasing 42% for the quarter.  The news stimulated volume trading at £45 per tonne across the t2e spot and forward markets; a price drop of over 5% on pre-data trading. However, the current £22.50 differential between the Glass Other and Remelt price appears to defy market logic. Both materials are currently undersupplied, however, the Glass Other supply has fallen 17% short of its mid-year target, where as Remelt is only 4% short. If market dynamics prevail these prices should converge in the coming months.     

Whilst these are positive signs that the Glass and Plastic PRN price looks to be stabilizing, a cautionary footnote should still be applied to these markets; compliance will still be challenging. The supply momentum built up in Q2 must continue into the second half of the year if the Q1 deficits are to be wiped out and for the markets to reach a more comfortable state of supply and demand. Only then are prices likely to return to more ‘sustainable’ levels.

In contrast, the metals markets have had one of their strongest first two quarters in recent years.

Consistent reports in the market of a sharp slowdown in steel exports in Q2 saw a reversal of the downward price trend that had emerged in the first four months of the Steel market. Prices recovered from a year low of £12 in May to £17.50 in the run up to the release of the figures. However this presented a false picture. Although Q2 data did confirm a 29% fall in exports, domestic reprocessing rates increased by 22% to offset any negative impact on supply. The net result was another very strong quarter for steel, surpassing its target by over 23,000 tonnes.  PRN prices tumbled as a result, falling to £10 in both the Spot and Forward markets.

Aluminium registered its strongest quarter in nearly two years, comfortably achieving its target by over 28%. Offer prices fell from £8 to £7.50; however a lack of buying liquidity in the market is presenting sellers with limited trading opportunities.

Supply in paper and wood remain broadly in line with previous quarters. PRN prices remained stable at £0.90-0.95 and £1.65-1.75 respectfully.

Tom Rickerby, senior market operator, the Environment Exchange (www.t2e.co.uk)

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