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Packaging - 29 March

Packaging recovery note (PRN) trading in the opening months of a new compliance year can often take a back seat as compliance schemes and producers begin the laborious process of wading through the previous year’s packaging data in a bid to meet the April submission deadline.

The lack of quantitative supply and demand information to influence prices is another key factor in the early trading months.

After a volatile year such as 2012, it is inevitable that the 2013 markets have taken some time to settle. With sellers naturally talking up the markets and buyers naturally talking prices down, some materials have been subject to prolonged periods of posturing in the opening months.

Early market prices generally reflect the perfor-mance of the previous year’s market, while taking into consideration factors such as target increases and the current underlying sentiment in the material markets.

While there will always be a temptation to try to forecast PRN prices at this time of year, the unexpected volatility in 2012 has again taught us that anyone who claims to know what PRN prices will be in six months will either be wrong or very lucky.

Some materials, however, are becoming increasingly predictable. Years of consistent oversupply have left the paper PRN price on its knees. For two years running, paper has shown little or no recovery in the transition from one compliance year to the next.

February’s average spot paper price of 90p represents the lowest ever start to a compliance year - down 9p on last year’s February average. Paper is in danger of going down the same route as the heavily oversupplied recovery PRN, which has rarely deviated from a market value of 30p to 50p in more than two and a half years.

At such nominal values, the PRN no longer bears any relation to the changes in the underlying market conditions and is merely there to cover the sellers’ admin costs.

A squeeze on the general recycling market looks to be the only chance of any value returning to the paper PRN this year.

Elsewhere, PRN prices remain directly linked to the performance of their corresponding recycling market.

Plastic’s positive start to the year had seen the PRN value stabilise at £15.50 in February.

But China’s decision to impose tighter restrictions on the import of recovered plastic has caused major disruption to UK exports in recent weeks, resulting in an upward swing in the PRN price. This left trading on t2e up 48% to £23 in March.

Although demand is expected to rise this year, early reports suggest the 5% target increase may be offset in part by a fall in the amount of plastic packaging handled.

Following glass’ annus horribilis, buyers will find little respite in the early 2013 price picture. While traded volume has been limited, traded prices have ranged from £47.50-£55 for remelt and £35-£45 for aggregate. Prices have drifted downward, but not at the rate most buyers would like to see.

An early stand-off has developed as a result, but many sellers remain bullish in what they see as another potentially challenging year for the glass market. It is early days for the new split glass note, but a £10-£15 differential seems to have been widely accepted for now. Obligations in glass are forecast to be down this year.

In the metals markets, aluminium spot trading has had a slow start to the year, but the October forward market has seen volume trading at £8 per tonne. An opening price mirrors last year’s average of £8.33.

Steel opened in more buoyant mood, with last year’s volatility still fresh in the minds of both buyers and sellers. PRN prices traded from £15 up to £17 during March.

Traders will want to see the scrap market return to healthier times before full confidence is restored to this market, and the current value represents a price that could go either way this year.

Tom Rickerby, senior market operator, The Environment Exchange (t2e)

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