The initial packaging recovery note (PRN) figures for June were revised up after it was pointed out that some markets had recorded a deficit, namely steel and energy from waste (EfW). All-in-all the second set of figures show a much healthier position, to the relief of many people.
It would appear that the higher values in wood are starting to result in an uplift in supply. There will need to be further growth in supply but trading is now at a price level that provides competition for the biomass sector. This should result in more material moving into recycling.
The paper figure improved greatly on the previous quarter, but there is some debate regarding the legitimacy of the monthly figures.
Even if the figures were not entirely accurate, supply is still reported as 100,000 tonnes up on Q1. Given that Q1 monthly figures saw an increase of 18% once the published figures were released, it would appear the higher PRN value of paper is facilitating what could be growth of around 200,000 tonnes when Q2 figures are released.
Steel volumes were in deficit when the figures were released but were under-reported by 30% on Q1 published figures. Steel is expected to report a healthy position on 23 July when the audited Q2 figures are published.
It is strange that aluminium costs are increasing. Supply remains good at this stage, but buyers were alarmed when 6,000 tonnes of carry-in tonnage was written off at the end of 2017.
Glass supply is a little tight, but a strong surplus in remelt should cover any aggregate deficit. After 18 months of high plastic PRN values, it is comforting to see some stability in this market. EfW capacity in the UK is so large it would be surprising if we saw any price volatility unless sellers stop registering to sell.
This year’s market has been dominated by concerns regarding the general recycling pot of supply. The recycling obligation can be filled by any material PRN and has previously been satisfied with paper and wood.
This year the wood obligation has increased by around 70% meaning the extra 200,000 tonnes of wood for general recycling is not there. The next pot of supply to be targeted is paper because it always creates a surplus. But the reduction of the mixed paper protocol claim rate from 23% to 9% has tightened that supply.
In addition, those large sellers that have previously supplied volume to the market have stopped contracting tonnage. Sellers who contracted tonnage in 2017 at very low prices for delivery in 2018 have been eager to close those contracts early, and therefore have had very little tonnage to offer the open market in Q1.
This has created the impression that tonnage is a lot tighter than expected. This has helped to overheat the current situation.
When it became obvious that paper and wood may struggle to meet general recycling obligations, attention switched to the next cheapest material, namely steel, and this has resulted in an uplift in value in this note as well. At the time of writing, glass tonnages are now being targeted for general recycling obligations, which is why we are seeing prices in these materials move closer to one another.
Wood buyers will no doubt be hoping for a good supply figure to be reported this month, given the strength of this year’s pricing. If supply does not increase then there will be concerns regarding the further target increase, due to be introduced in 2019.
Next year it is expected that wood demand will go up by an additional 80,000 tonnes once the new target is applied. Given that we have struggled to meet 2018 demand even at these record prices, one would expect some discussion surrounding a revision of the 2019 target.
If the PRN system is to perform as it is designed to, then the increased prices recorded for the first half of this year should result in a boost in supply. If we fail to see any improvement on the Q1 supply report, one would expect those stakeholders who have long questioned the system will have plenty of evidence that it is no longer fit for purpose.