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CIWM Article - 2017 Review - One Door Closes as another Opens.

Now that the 2017 packaging compliance year has drawn to a close we look back at the issues surrounding last year’s compliance and look forward to what 2018 has in store.

The 2017 compliance year opened with packaging recovery note (PRN) prices trading at similar levels to 2016. Plastic was the highest value note at the start of the year and would continue to hold stakeholders attention throughout the year. Early trading was £25 per tonne however when media articles started to circulate regarding more stringent import controls on material destined for the Chinese market, prices started to increase. Concerns continued to dominate discussions during Q2 with news articles being printed every week highlighting them.

The PRN system was designed to increase price during a shortage to encourage more reprocessing or investment in capacity by having a more expensive note.  In other words, if there is a shortage then the price goes up and vice versa.  Historically this market mechanism has worked.  

Analysis of the reported monthly supply figures allowed stakeholders to get an early insight into the potential scale of the problems ahead.  During 2017, against the background of strong supply the evidence note price continued to increase to three times the starting price. This de-coupling of supply and price was initially challenging to understand.

As the year progressed it became clear that the Chinese authorities were preparing to continue implementing more stringent import controls with the introduction of the new National Sword protocol aiming to not only restrict lower grade plastic material but also target mixed paper grades. Confusingly, this news did not have the same effect on the Paper PRN price as seen in Plastic.

The confirmation of record breaking target increases (in real terms by around 70%) for Wood from 2018 onwards coupled with a downturn in packaging grade material going to recycling plants resulted in a tightening of supply towards the end of the year. This resulted in prices increasing from £2 to a high of £10 per tonne.

A dramatic increase of more than a factor of 10 in the Aluminium note value in the final days of the compliance year once again left many scratching their heads as again supply had indicated a surplus supply throughout the year.  Suggestions of market making or manipulation have been heard in the industry.

Looking forward to 2018 there do appear to be many challenges ahead. Plastic once again dominates early year discussions but if the system is to work as it is designed to, one would expect a more stable year.  We have already seen higher note values assist in identifying and facilitating exports to new end markets in 2017. One can argue that at some stage those new markets will become oversupplied and exports could slow again in which case we may see an increase in prices later in the year.

In order to fully address our reliance on export markets we need to be investing more in domestic reprocessing plants.  There has been limited success and many failures previously.  This has been attributed, in part, to a lack of support from the PRN system.  The higher values previously assisted with the export of material as opposed to incentivising domestic reprocessing facilities. 

Given that quality standards are starting to increase in the end export markets focus, has shifted back to development of domestic facilities and the higher value PRN should go some way to assisting this process. Indeed the recent announcement by Beauparc Utilities is the most recent of at least four new facilities opened or being planned.

With the weight of media attention now firmly focused on Plastic pollution it is expected this story will continue to develop this year so watch this space!

Ian Andrews