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MARKETS: Packaging 8 June 2013

2013 has seen the first increases to recycling targets since targets were frozen at 2010 levels pending the government’s waste review. An increase to the Aluminium, Steel and Plastic target was anticipated to provide a boost in PRN demand across these materials.

Here we consider how the public release of 2013 obligation data is likely to affect this year’s PRN markets.

This year’s 5% target increase in plastic has been widely criticised in the plastics industry for being ‘too challenging’. By driving up PRN demand too quickly many feared that PRN prices would be pushed to unsustainable levels, placing unnecessary burden on UK producers, lowering the quality of recovered plastics and increasing the potential for fraud with in the system.

With the release of the obligation data several of these concerns are becoming reality.

Plastic demand is up by around 80,000 tonnes (13%) on last year. This will require around 171,000 PRNs to be generated each quarter to meet the total UK obligation. To put this into context, the average PRNs generated per quarter in 2012 fell well short of this at around 161,000 tonnes and quarter 1 of 2013 has already missed this target by 10% (17,000 tonnes). However confirmation of the increased demand has only ‘poured fuel’ on an already volatile PRN market.

China’s Operation Green fence is continuing to cause major disruption to the export of low grade recovered plastics. This is a market that has been integral to the UK meeting its recycling targets in recent years and without it many are questioning how the additional demand will be met. Whilst it may be too early to start talking about non-compliance, the Plastic market will need to adjust quickly to find a way to ‘unlock’ the PRNs on low grade material currently being stockpiled around the country.

Reaction in the PRN market has seen plastic prices continue to spiral upwards. Prices on t2e are up another 27% to £70 in the 2 weeks since the release of the obligation data. The last time plastic PRNs hit similar prices was in November 2008 at the onset of the financial crisis.  

The Glass market continues to court controversy as it adjusts to life after the distorting effects of fraud in the system. High glass PRN prices have showed no signs of abating after posting another ‘worryingly low’ Quarter 1 recycling figure. However the news that 2013 demand is down by 80,000 tonnes will come as some reprieve for buyers and should go some way to help restore the supply – demand balance. Despite this, it remains a very tight market and PRN prices have continued to edge upward with spot and forward prices for Re-melt glass up £5 to £65 per tonne since the release of the demand data. Glass Other prices remain stable at £50.

Steel demand has also fallen for the sixth consecutive year despite seeing a 1% increase in its recycling target. PRN demand is down 8% or 28,000 tonnes on 2012. News of this unexpected fall coupled with a very strong Q1 sparked a brief sell off with prices falling from £15 to £12 per tonne across the Spot and Forward markets before rebounding to £13. Reports suggest that activity in the Scrap markets has slowed significantly in Q2. However buyers will hope that surplus PRNs generated in Q1 should be enough to offset any slow down in supply over the coming months.

Aluminium demand rose in line with its 3% target increase. Demand is up around 500 tonnes per quarter to 15,556 tonnes. However, this should cause little concern to the market. In the past two years, the UK has generated on average 17,014 PRNs per quarter and this year’s increase in demand should, in theory, be comfortably met. PRN prices remain unchanged at £8 per tonne.

Demand for Paper and Wood fell marginally with no immediate effect to PRN prices. Overall obligation fell by 2.5% reflecting the weaker economic conditions in 2012.

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

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