The 2012 compliance year saw the packaging recovery note (PRN) system tested to the brink of collapse, but ultimately emerge a more robust and credible system.
Wind the clock back 14 months and the climate of the PRN system was very different. A freeze on targets and an abundance of PRNs had left the markets flat, and PRNs in some materials had become almost worthless.
While producers were enjoying their cheapest compliance in years - far cheaper than their European counterparts - accredited sellers were growing disillusioned by the increased administrative demands of the system coupled with limited financial rewards.
This situation had led many to question the value of such a market-based system to drive UK recycling.
On paper, 2012 looked to be an administrative formality. Targets had been comfortably met in 2011 and PRN prices were showing no sign of recovery. 2012 opened as a strong buyers’ market, but all that was about to change.
l In the story of 2012, glass will be remembered as the main protagonist. During the previous year, the market had been rocked by two investigations into the fraud-ulent issue of glass PRNs. This activity had left the supply side of the market heavily distorted. But it was not until April 2012 that the full ramifications were felt.
Large PRN surpluses in 2011 saw glass PRN prices fall to unprecedented levels. The 2012 market opened trading at £9 per tonne - the lowest opening price since 2000. At this stage, few would have predicted the storm that was coming.
With the fraudulent element removed from the market, coupled with a downturn in the aggregates market and less price support from the PRN, glass recycling figures were hit hard.
The release of Q1 data in April was the first clear indication of this, with PRN generation falling 15% from the peak in 2011. This triggered a dramatic upward trend in the PRN price that would last for the next seven months.
But, despite the rising PRN price, recycling rates failed to improve for the following two quarters and, as fears grew over mass non-compliance, distressed buying pushed spot prices to a record £75 per tonne.
By October the glass market was more than 15% under-supplied (138,000 tonnes), and was facing a severe battle to achieve not only UK compliance but minimum European targets as well.
But just as people were beginning to write it off, the glass market responded.
The high PRN price had started to have a major influence on activity right through the glass supply chain. Recycling activities that would previously have been uneconomical were now made viable by the £75 PRN subsidy.
Thousands of tonnes of ‘dirty’ mixed glass were able to be cleaned, sorted and recycled; and glass exports increased by 77% in Q4 as new markets were unlocked and fresh impetus was provided to stagnant markets in the glass aggregate sector.
In one of the tightest year ends in PRN history, glass continued to trade at more than £70 right up to the final minutes of the compliance year. Against all the odds, enough PRNs were generated in the final three months to meet demand.
In all, 561,521 glass PRNs were generated in the final quarter, an increase of 35% on the quarterly average for 2012.
l Glass was not the only material to experience extreme volatility in the 2012 compliance year. Plastic also experienced six months of under-supply that saw prices go from £4.50 in January to a peak of £30.50 in October.
A slowdown in the plastic export market was the main cause of this, with export activity falling 15% on the same period the previous year.
PRNs were initially reported at 13% (39,000 tonnes) under-supplied for the first half of the year, but this was revised upward by 28,000 tonnes, reducing the under-supply to 3%. This would ultimately turn out to be the tipping point in last year’s market, and brought six months of price increases to an end.
In a complete reversal of fortunes, the second half of the compliance year saw plastic PRN generation surge to record levels in back-to-back quarters. The dramatic improvement in availability of PRNs saw prices plummet, with 90% of the value wiped out in the final three months.
The year closed at £2 per tonne with more than 3,000 tonnes of unsold evidence.
l The rise and fall of the plastic price was matched by similar trading patterns in steel. A weak export market, falling scrap prices and a general lack of material resulted in a significant drop off in PRN generation for the first nine months of the year.
The recovery in the steel price began in subdued fashion: trading up from an opening price of £3.50 to £9 in early June. But an increasing shortage in supply finally caught up with the market in the third quarter.
In a period of highly volatile trading, PRN values increased by 500% - trading up to a year-high of £55 in late October. But a substantial growth in exports in the fourth quarter (in part stimulated by high PRN prices) brought relief for late buyers as prices fell to a year-close of £15 per tonne.
While higher prices in glass, plastic and steel had pushed up compliance costs by as much as 10 times for many producers, the story elsewhere was less volatile.
At the other end of the price spectrum, the paper and recovery markets recorded their lowest ever average PRN price. The average price on t2e for these materials was 88p and 34p respectively.
So 2012 was a year of extremes for PRN prices, but many would argue that this is a sign of the system working. As a market-based system, it offers low-cost compliance in times of plentiful supply, but is designed to provide price support and help restore balance when markets show signs of underperforming.
Although many producers may be licking their wounds after suffering higher prices in 2012, the PRN system has yet again proven it is up to the task.