CIWM Journal Article – Review of Q1 Reprocessing/Export figures 2018.
At the start of this week the Environment Agency released the first set of Packaging Recovery Note (PRN) supply figures for 2018. These provide the first indication of the projected supply and will highlight what progress has been made towards this year’s targets. China, its material bans on paper and plastic and the impacts are foremost on everyone’s minds.
With the Plastic market seeing the most volatility over the last few years it was comforting to see quarterly volumes reported at close to target. The initial report reported Plastic supply at 322,000 Tonnes (or 322KT) but this was quickly revised down to 251KT once submission errors had been rectified. At this level it was 10KT down on the same period last year. However, with several reprocessors still to sign off their quarterly return, it is hoped that once completed, the supply will be on target for the quarter. Demand this year is expected to be about 265KT but the carry in tonnage should alleviate any short-term supply concerns. This is last year’s December supply that can be used in this year and allows for a bit of a buffer in supply. Given the strength of the carry in one would expect prices to settle. If this supply can be maintained for Q2 then one would expect prices to soften later in the year.
Paper reported a sizable drop in supply on the same period last year dropping from 966KT to 822KT. It is thought that the restrictions placed on the export of mixed papers to China are finally starting to take effect. Once again, a reasonably strong carry in figure should address the short term concerns. The market has already reported an increase in Paper prices due to Q1 supply being allocated to forward contracts which has left the market undersupplied. The rise is from £1 to £5 and possibly further increases in the Paper price can be expected as the dwindling supply receives more attention from general recycling buyers.
The Paper market is due to see increased General Recycling Note demand this year; General recycling obligations are allocated to producers with the option to purchase any of the material recovery notes in the market. In the past this has ensured over supplied markets have an option to generate income albeit always at the cheapest material note value. The Wood market has always provided a healthy surplus for the General Recycling pot of demand but with Wood obligations set to increase this year by over 70% in real terms producers will be looking for Paper to make up the shortfall.
As mentioned in the previous paragraph, the Wood demand is set to increase by 70% to about 417KT due to the new target . The Q1 supply was down by 13KT on 2017 figures and it will require 80KT additional growth if we are to meet this year’s material specific demand. With opening prices increasing to their highest level during the quarter (£15) it is concerning that current prices haven’t facilitated any growth in supply. As the note value increases this is meant to incentivise sellers to produce more supply, the problem in the Wood market is that the raw material is already competing with a heavily incentivized Biomass market and unfortunately losing the battle. The price will have to increase further if we are to close the 80KT supply gap for Wood.
Collectively, both Glass markets (Remelt & Aggregate) have managed to produce enough supply but it should be noted that this market is finely balanced. Aggregate supply continues to fall with Remelt only just covering the shortfall. Price for both grades should remain stable going forward but are expected to align at about £13 as the year progresses.
Aluminium has reported some growth this quarter, however due to target increases the supply only remains only on track with demand. A reduction in carry in tonnage has increased concerns and it is expected prices will hold at current levels (£15). It is suspected that there should be a plentiful supply as last year was somewhat anomalous with at least one reprocessor hanging on to tonnage and not selling it, nor allowing it to be carried into 2018.
Steel, although performing well, is slightly behind last year’s supply. It had been hoped that this market would provide surplus tonnage to meet general recycling demand but at this stage this material cannot be relied upon. With prices opening at the low end of the pricing scale (£5), little incentive has been provided to increase supply last quarter.
The EFW market is well supplied and is expected to maintain current price levels (<£1).
Overall the figures were in line with expectations. With the exception of Paper, most grades reported similar levels of supply to last year but with increased targets, along with export restrictions and dwindling general recycling supply these latest figures show there is still some work ahead. Those markets which have already recorded higher than expected prices may see further increases in value if the Q2 report (23rd July 2018) fails to report a surplus.