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PRN Market Report – Wk. End : Friday 31st August 2018

Market Overview

After two weeks away from the office I was surprised to see further increases in Plastic notes values. Prices increased up to £70.00 per tonne as stories emanated around further import restrictions to oversubscribed far east markets.  Paper, Steel and Glass prices reported small increases as buyers sought out best value for their general recycling requirements, tightening supply in each material. Wood prices have stabilised, albeit at record price levels, and Aluminium volumes reported a small lift due to increased demand.

Prices in Plastic rose as exporters reported concerns about the viability of new end markets to take tonnage, which would have previously been destined for the Chinese market. As volumes destined for these markets have grown, they have become backed up with material leading to internal logistical problems. This, coupled with newly introduced export restrictions in these end markets, has increased concerns surrounding the viability of said markets going forward; this has resulted in the latest price increases.

The Wood evidence note price has remained stable with reports that at current price levels it is providing strong competition for material previously destined for the bio mass market. A review of the latest published monthly return figures highlights that the average monthly return in Q2 has growth of 10k on the previous quarter. This provides the strongest indication yet that the increased note values are having the desired effect of increasing supply. At current levels the market will satisfy this year’s requirement, although with little carry out and increased targets due to result in demand going up by a further 70k next year, further price increases cannot be ruled out. 

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CIWM Journal Article – Review of Q2 Reprocessing and Export Figures

If the first set of supply figures raised availability concerns, the second set published this week will provide some comfort. All materials reported a strong showing with only the Glass Other supply failing to meet its target. Glass Remelt volumes continue to provide a buffer to cover the Glass Other obligations and at current rates may yet add some excess supply to the General Recycling obligation.

Paper reported a 8.5% increase on Q1 supply and is starting to recover from the perceived short position from earlier in the year. Both Aluminium and Steel reported increases up 10% and 6.9%. In Wood it would appear the increased note value is having the desired effect with supply up 41% on Q1. Plastic continues to perform well reporting the highest quarterly return recorded at 285,000 tonnes although it is sobering to point out, as the National Audit Office report recently has, around 65% of this total is generated by the export side of the market. Below I look at each material individually.

Glass Remelt supply created a good surplus this quarter which helped to address the undersupply position of the Glass Other market. When demand and supply is combined, this market is on track to meet obligations and with the current heatwave expected to increase supply of material in the later part of the year there is every opportunity for it to record a surplus. Prices are expected to remain stable until the next published figures are released in October.

Paper reported an improvement of 70,000 tonnes on the previous period. At current levels Paper material specific demand will be met with the next quarters supply leaving the market with Q4 supply to satisfy General Recycling demand. The figures show that this quarter in excess of 1 million tonnes were issued compared to just 268,000 tonnes in Q1. As Q1 buyers circled the market in search of Paper many were disappointed with the responses of sellers who had limited tonnage for Spot transactions. This created an impression of significant tightness in supply when in actual fact the supply had been generated but was being used to satisfy lower value contracts agreed in the final two quarters of 2017. The additional demand from previously contracted buyers overheated the market and resulted in prices increasing when that demand could not be met. As prices started to increase General buyers looked to other markets to satisfy demand and this additional interest in these markets resulted in prices increasing in all lower value material prns. The fact that very little was issued in Q1 and an excess was issued in Q2 when compared against supply confirms that contracts had been agreed just not delivered.

A strong showing for Aluminium with supply increasing on Q1 by 10% and now on target. Concerns were raised earlier in the year when 6,000 tonnes of December tonnage failed to be carried across into 2018. This coupled with news of new import tariffs being imposed in the US drove concerned buyers into the market and saw prices increase in the early part of the year. The latest set of figures shows that we are back on track and it is expected that if the supply continues its current trend then prices will soften as the year progresses.

The Steel material specific obligation will be met with ease this year but the notes attractiveness for General Recycling buyers should result in continued interest in the excess supply it creates. The additional demand should result in values remaining stable for the next quarter with potential for a slight softening of note values.

Very positive news for Wood buyers with supply increasing by 41% this quarter. It is expected that prices will hold at their current levels for the immediate future as it provides a subside at a level which provides strong competition for the recovered material. On current projections this market will meet its obligation this year but will provide little surplus to be carried across into 2019 when next years target increase will result in a further jump of 70,000 tonnes. 

The Plastic market has recorded its highest quarter volumes even against a backdrop of struggling export markets. It would appear at current price levels we are heading towards creating a surplus supply of in the region of 100,000 tonnes. The is some irony in the fact that 2/3rds of the supply generated comes from the export markets with the figures being released so soon after the published NAO report which was highly critical of this route for reprocessing. The UK market is heavily dependent on oversea markets to deal with our material due to lack domestic plants. In the short term, one would expect this trend to continue given that over the last number of years there have been numerous Plastic recovery businesses located in the UK which have run into financial difficulties. Our reliance on export markets cannot be understated but there are certainly things which could help increase confidence in these routes. With other materials protocol percentages are applied in order to cover such issues as contamination being claimed upon and this would appear to be the simplest answer to dealing with concerns raised in the report.

The EFW (Recovery) note reported a downturn in supply but is currently carrying a surplus of over 100.000 tonnes at the mid-point of the year. Evidence notes values are expected to remain at administrative levels going forward. Readers should be aware that this note can only be used for EFW obligations so regardless of surplus it will have no bearing on other note values.

The outlook for the year has been boosted by this latest set of figures. The lack of available Wood tonnage for General Recycling obligations will continue to focus buyers concerns but with Paper, Steel, Glass and Plastic now indicating good growth albeit at higher than expected price levels it is felt the situation has greatly improved from the supply position in Q1. With regard to the latest negative reports regarding the overall system, the evidence to hand shows that when evidence note values increase supply increases which is what the system is designed to do. There are valid criticisms surrounding the robustness of the data the market produces but it is up to those who produce the information to ensure it is reliable. The mid-year report card this year should state Great Improvement, Price Increases = Increased Supply, Progress still required, Focus on the information to hand and to those who provide the information, Make sure it is robust and creditable.

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MRW Article - Q2 Reprocessing and Recycling Figures

It was good to see the team at NPWD catch us all off guard and release the report one day early being made available on the Sunday morning. Those who managed to access early will have no doubt dropped their copy of the Sunday times as their eyes cast down the report. Too much relief the news for Q2 was one of great improvement with evidence note generation rising as fast as the temperature. In Wood, supply was up by 41%, reporting 118,000 tonnes for the quarter putting the market back on target to meet its material specific obligation. With little to no excess Wood being generated it was heartening to see Paper supply grow by 8.5% against the previous period. This increase when taken along Q1 supply and this year’s carry in tonnage puts the Paper market in a position to create an excess of around 750,000 tonnes this year all of which will be required to meet overall recycling target. In Steel, further growth of 6.9%, will result in over 100,000 tonnes of excess supply if the trend is maintained. Another market which appears to be heading towards the 100,000 tonnes excess supply position is Plastic which reported a 13% increase this quarter. Plastic, the most talked about market, has seen strong returns over the last 18 months although reviewing the price trend you wouldn’t think that is the case. Some sellers have marveled at the level of reported tonnage being exported with many questioning the validity of the numbers. So it would appear Plastic will continue to be dominated by conflicting views. Which to believe? Audited supply figures or hearsay and negative media articles, I know which side I will be on.

Glass Remelt volumes continue to outstrip those of their poor relative Glass Other which is just as well given the Glass Other pot of supply is woefully behind. At the mid-point of the year Glass Other has only produced 27% of supply to meet its obligation. Glass remelt volumes remain in excess with 67% of demand already met. At current rates, and given the expected boost of volume from the recent spell of good weather, there is every chance that Glass Remelt will provide enough excess to meet both the undersupply in Glass Other and General Recycling obligations.

The last quarter has been dominated by concerns of undersupply across all materials which in turn has placed upward pressure on prices. The reason why this has occurred centers of the flexible pot of demand know as General Recycling obligations. Buyers who have to secure General Recycling notes have the option to purchase any of the material evidence notes in the market. In the past these obligations have been filled by Paper and Wood surpluses which are generally noted as being the cheapest of the material prns available. The increase in the Wood specific obligation has resulted in a loss of around 200,000 tonnes of the General Recycling note supply and buyers have been eager to secure tonnage in other low value markets. This is why we have seen upward price pressure in both Paper and Steel notes and more recently Glass notes. The latest set of supply figures shows that all markets remain in good health with excess supply now expected to be generated in Steel, Glass and Paper to meet the downturn in Wood. I have omitted Plastic for the simple reason that I do not believe the note value will drop to a low enough level to provide competition with other materials.

These figures make very pleasing reading as they provide further evidence that the design of the system works as it should. When note values increase we see that replicated in increased supply. What is concerning is the reaction of the market to hearsay and talk of issues going forward even when published information shows supply in good health. People often discuss the carry in tonnage and dismiss the volumes concerned due to the fact that they generally get carried into the next year. Carry in tonnage is there to act as a buffer for years when issues surrounding supply come to the fore. This year we have seen Plastic Carry In reported at 74,000 tonnes. When combined with the Q1 supply figure at the end of Q1 the market had excess of 66,000 tonnes but yet the Plastic price maintained its price spread of £60 - £70. The latest set of figures show that at the midpoint the market had excess of 90,000 tonnes of Plastic, what price as Plastic PRN in Q3? Who knows but if buyers take anything from this latest set of figures then surely it has to be, concentrate on the published information when approaching pricing decisions and be aware that everything you hear may not be as it seems. 

Ian Andrews

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2018 Q1 Reprocessing & Export Supply Figures
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Collectively, the Glass supply looks reasonably comfortable although Aggregate supply continues to decrease with the shortfall being covered by increased Remelt tonnage. If the trend was to continue then one would expect both note values to align.

Some will have been slightly shocked by the strength of the recently released supply figures as Plastic had reported Q1 supply at 322KT. This was quickly revised down to 251KT for the quarter bringing it closer to the projected quarterly demand. Although slightly behind the 2017 Q1 figure (261KT) some sellers are  still to finalise their return and it is hoped that when complete the figure will be in line with demand expectations. Plastic prices are expected to hold at current levels for the next quarter to ensure supply is secured. 

In Paper, a 140k decrease from the same period in 2017 has resulted in prices increasing. It may be that we are finally seeing the effect of the export ban on Mixed Paper grades into to China. Paper demand is expected to increase this year with the general recycling pot requiring significant excess tonnage from this market. In the short term one would expect some further upward pressure on the price.

Wood supply is down on the same period last year even in light of the fact that we have seen trading open at historically high levels this year. As with Paper, it is expected this market will see further price increases in the short term.  With the Wood market unable to provide supply for the general recycling pot other markets will need to produce significant surplus to make up the shortfall.

The Q1 figures show that Steel is producing an excess but unfortunately at current levels it will fail to accommodate the anticipated increase in general recycling demand. Weak early pricing has done little to incentivise sellers and this market remains finely balanced going forward. 

In Aluminium we are on track however the reduced carry in tonnage has ensured close attention is paid to this year’s supply as a weak quarter could result in significant upward pressure on prices. 

Finally, The EFW market continues to produce significant surplus and based on the most recent figures prices should remain at the bottom end of the scale for the foreseeable future.

 

 

   - Ian Andrews

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.

Ian Andrews

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PRN Market Overview 6th April 2018
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Packaging Recovery Notes Market Overview

As the registration deadline approaches and with the timing of the Easter holidays leading some to take an early year break this week trading activity has been weak. The only noticeable change in market prices was seen in the Paper market with prices increasing up to £3.25. As has previously been reported a lack of available tonnage has resulted in the Paper price increasing. Now that the deadline of independent registration is passed and companies choosing this option are in receipt of their obligations for the year it is expected that trading activity will increase this week which may lead to some additional upward pressure on prices. 

This month we are due to see the first published supply information (22nd April Q1), and these figures along with the monthly analysis may result in a price correction depending on what results are published. Of most interest will be the current state of play in the Paper, Plastic and Wood markets. In Plastic, were early year returns appear to be strong, confirmation of a good quarter should result in a softening of the price. On early year information it would appear the Wood market will need to record a significant return if we are to avoid further price increases. Buyers will hope we see some evidence of a stronger supply position in order to take some pressure out of what appears to be an increasing Paper price.  All other prices remained routed in their previously reported prices spreads.