Secondary Markets Commentary- 5th January 2018

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FROM 5TH JANUARY INTELLIGENCE REPORT:

Start of 2018 brings no joy as export market struggles with surprise quota for paper adding to difficulty

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The export market has started the year with a hangover, although the cause was more like a miserable drunk in the corner than a great party. Clearly, plastics recyclers knew what was on the way as they had been adjusting to the new reality for a few months now – even if finding alternative destinations for material remains difficult after China stopped being the prime destination. But a surprisingly tough import quota for Chinese paper mills has made the start of the year tricky for the paper sector too. More on this below. With January traditionally a good month with volume available following Christmas, plus getting material on the water ahead of Chinese New Year, it increasingly looks like January 2018 will see decent arisings, but with vastly less choice of a home to go to. Otherwise, conditions should be reasonably good. With the exception of the struggling UK, the global economy is in a good place on the whole, while shipping costs and the foreign exchange rates are largely benign.

Plastics
The start of 2018 carried on the story of 2017 with China and the PRN price dominating. There are rumours that Chinese nationals who traded materials from the UK to China are looking to invest in new UK reprocessing capacity to turn scrap plastic into pellet that can be then exported to China.
The problem with this might be that they don’t necessarily have the operational, technical and regulatory expertise, which is likely to make any investment take time before they start accepting material – if the rumours prove to be true of course.
With the PRN reaching £53 per tonne this week, from £50 before Christmas, the market is wondering where it is likely to head throughout the year with it starting so high. The monthly data due next week is likely to be scrutinised for any clues of how the China ban impacted on December and what this might mean for the rest of this year.
Prices have softened for some grades with HDPE and LDPE in particular seeing £10 falls. More could be on the way unless demand from other destinations and a potentially higher PRN price supports the physical price.

Paper
Chinese mill groups are largely out of the market after the Government there issued interim licences of just 2.27 million tonnes. With most of this allocation already taken up in shipments at the end of 2017, demand is therefore exceptionally weak. The mills also don’t know when the next set of licences will be issued adding to the uncertainty. Demand from domestic mills remains stronger, with the export market (in the small volumes it is buying) paying between £100 to £110 for OCC, but domestic mills from £110 to £120. The overall effect is that prices this week were unchanged on those before Christmas, but there is an expectation of continued softening.

Metals
Copper grades jumped up in price substantially this week following on from rises on the LME. Aluminium grades and steel also saw increases.

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