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SCM Environmental's Joe Savage's monthly PRN market update

Date: 31/10/2013 | Author: Joe Savage

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The third quarter packaging recovery data provisionally published has shown a dramatic increase in the volume of plastic materials sent for recovery from July to the end of September. This is surely a positive sign and will almost certainly go a long way to allaying fears that the UK will struggle to meet the packaging target for 2013. This year was the first to experience the planned annual increase of 5 per cent on the recovery target and as such nearly an additional 100kT of plastic PRNs were required, causing significant price rises throughout the year as supplies looked very tight.

Following strong pricing through the early stages of the month, the new data shows we only require 138kT during the final quarter (the average for Q1 and Q2 was 162kT) which has already pushed the PRN price to below £50.00 per tonne - a level it had not traded at since the first quarter figures were published in April.

PRN performanceNot surprisingly the price of PRNs has supported recycling; exactly what the system is designed to do. Indeed the data shows exporters managed to move an additional 27kT when compared to the previous volumes despite quality restrictions still being enforced by some Asian markets.

This is positive news as the PRN system can only work if compliance is ultimately achieved, and with a higher plastic target again in 2014 we’ll need to see consistent improvements in the UK’s ability to recover plastic packaging.

Plastic PRN dataHowever, there are already words of caution as lower PRN prices could see this performance tail off as some markets become uneconomical to pursue without the support of a relatively strong and stable price point for the evidence.

The results achieved this quarter are projected to be the baseline requirement for 2014 and therefore we’d need to see this level of performance regularly next year, something which would be very doubtful should the PRN price collapse.

A further complication to the current markets will be the trading of December tonnage, which, if purchased for 2014 (at a premium) could actually start to leave the current year short.

Only time can tell on that front but prudent buyers will be looking to ensure that they do not leave themselves exposed to potential movements at the end of the year.

The other troublesome material, glass did not perform as well and still looks particularly tight for the remaining part of the year. A combined performance of 416kT is encouraging, but we are still lagging the 75 per cent ideal point for the current year and will require close to 450kT in the final period.

Glass PRN dataAs seen last year this is perfectly possible, but it will require a strong PRN price to ensure that the final surplus stocks of ‘dirty’ glass containers are processed. Interestingly we are ahead of the 63 per cent remelt target and it is the aggregates that are falling behind, so with time running out it would appear that the price for aggregate PRN will naturally close in on the remelt variant which currently carries a higher price of £75.00.

For 2014 we are shortly expecting a quick consultation on revising the material target down from 81 per cent to 77 per cent. This is because of the recent ‘Glassflow Report’ which investigated the production and flow of glass on the market. In essence it appears that the previous estimations on the volume of glass placed on the UK market were over- inflated and adopting the revision will allow for a reduction in UK PRN business targets while still adhering to the overarching EU target. In simple terms, using the 2013 submission we would have required circa 80kT less PRNs this year, naturally easing availability.

Prices for other PRN grades were broadly flat during October, prior year strong performance more or less guarantees compliance targets will be met and therefore PRN prices remain stable.

Metals are both well ahead for the year and trade at £4.00 (alu) / £7.00 (steel) on spot markets, while wood and paper still trade sub £2.00, which barring a few minor blips they have done in recent years.

Category: Updates
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