A year ago, weak first quarter recycling figures set packaging recovery note (PRN) values on a six-month upward price curve, that resulted in some of the highest compliance costs incurred by producers for several years.
Since then prices have receded, PRN supply has improved and confidence has been restored to the markets. But the release of this year’s Q1 data has brought with it a concerned sense of déjà vu for some materials.
Trading has been strong in the run-up to the release of Q1 figures, with more than 100,000 tonnes already traded on t2e in April. Cheap paper has been prominent in this period, with traded prices ranging from 95p in the spot market to 75p in the December forward market.
A natural upwards movement in buying following the data submission deadline has helped to firm prices at the top end of this price range.
While China’s operation Green Fence has mainly affected plastic, reports in the market suggest that paper loads have also been turned away on quality concerns. If such problems become widespread, producers may see a shift in sellers’ attitudes to the “worthless” paper PRN.
For glass producers still feeling bruised from the 2012 market, the release of Q1 figures will no doubt feel like a case of ‘out of the frying pan, into the fire’.
The combined figure for glass PRNs generated in the quarter is 327,423. This represents a 42% fall on Q4 2012 and a 10% fall on the same period last year.
Potential explanations for this decline include the significant depletion of glass stocks in Q4 2012, additional administrative caveats placed on the export of remelt glass, seasonal variations on the use of aggregate glass and protracted negotiations within the glass supply chain on the ‘ownership’ of the PRN.
But questions will certainly be asked as to what effect, if any, the current high PRN price is having on UK glass recycling. The market reaction to this news saw the glass aggregate price trade up 19% to £50, initially aligning itself more closely with the remelt price.
But strong competition for glass remelt pushed prices to a year-high of £60 per tonne in the October forward market. Buyers will be keen to see demand figures, also widely expected to be down, before driving prices unnecessarily higher.
Plastic’s dramatic price increase in recent weeks will be giving buyers further cause for concern. Prices are up 140% on the beginning of the year and, at £37.50 per tonne, the current spot price is already £7 above last year’s highs.
Despite all the signs of a strong sellers’ market, the Q1 recycling figures were relatively healthy: up 4.5% on the same period last year. But this tells only half the story.
PRN prices are being driven higher by an acute decline in the export of lower quality packaging grades following China’s implementation of Operation Green Fence.
Historically, in times of under-supply, the plastic market has reacted positively to a rising PRN price. As the largest buyer of UK recovered plastics, it is generally the Chinese that have led the bail-out. However when the problem rests solely with the Chinese market, it is difficult to identify an alternative quick fix.
As a result, sellers have adjusted price expectations upwards and buyers are braced for further volatility.
In contrast, the metal grades have experienced strong starts to the year. Steel PRNs fell from £17 to £15 per tonne after posting Q1 results that mirrored the strong finish to 2012. Aluminium remained at £8 per tonne, despite a 23% increase on the previous quarter.
Wood recycling’s year-on- year decline continued following a fourth successive fall in the quarterly figures. PRN prices remain depressed at £1.50.
Tom Rickerby, senior market operator, The Environment Exchange (t2e)