12 November 2018 by Steve Eminton

PRN pressure rises amid ‘unfair’ aluminium market claim

Concerns around the market for PRNs – packaging waste recovery notes – have prompted a referral over aluminium PRNs to the Competitions and Markets Authority.

A request has been made to the CMA by packaging waste compliance schemes through their Defra-appointed Advisory Committee on Packaging (ACP). The ACP has asked the markets authority to scrutinise the aluminium PRN with regard to an unnamed number of exporters/reprocessors who appear to be holding on to aluminium PRNs for a higher price rather than selling them to compliance schemes and direct registrants in a ‘reasonable’ way.

cans

Aluminium PRNs, usually generated from used beverage cans, are the subject of a referral to the Competition and Markets Authority (picture: Shutterstock)

The concern over aluminium PRNs (see more below) comes  in the wake of third quarter figures for the  sector last month which have contributed to price rises this month as well as in the last week of October. It has become evident that there could be a last minute rush by compliance schemes and direct registrants to meet their 2018 obligations. Consequently, an upward trend in the PRN markets is expected for the rest of the year with higher prices passed on by schemes to their members, potentially with extra invoices.

In the UK, PRNs are issued by domestic reprocessors and exporters (such as steelworks and paper mills) and are used by schemes as evidence of recycling and recovery for their clients, typically retailers, packer/fillers and raw material producers. This under the 1994 Packaging and Packaging Waste Directive implemented in the UK through the PRN system.

Catalyst

Industry experts say that the Q3 figures in effect have acted as a “catalyst” for the final two months although overall there is an expectation that targets should be met for 2018.

Wood has been controversial because the UK government set a higher target than required by Brussels and may yet review it to bring it lower. But any changed figure could cause confusion in the markets as some sales have been agreed for wood PRNs next year on the back of the higher domestic targets. One source suggested that Defra and the Environment Agency might even “go soft” and allow businesses to meet the European targets instead, but such approach would confuse the way the targets are set and achieved overall.

Glass has suddenly emerged as a tighter material than expected with a view from some compliance businesses that the price of generally £13-17 so far this year as being too low to properly support the market, including the export of material for aggregate use. There have also been issues in overseas markets with shipments to Italy reduced because of legislative actions there.

Paper overall “has been doing well”, one scheme director said. And he said that it was likely that the paper target will be met without difficulty despite the fact that exports to China would be reduced or almost non-existent in the November-December period, unless more export licences were issued by China’s authorities. This is partly because exports of paper (cardboard) are continuing to other parts of South East Asia and domestic and European mills are running well.

Overall the lively PRN market, said another scheme director, “is doing what the PRN system is meant to do. We will see some changes in the Waste Strategy but the PRN is driving the market.”

Aluminium

Aluminium, however, is the one material where almost out of the blue there is a huge amount of controversy and concern. Attention is focusing on PRNs generated from used aluminium cans which come in considerable numbers from the domestic waste stream via waste management companies and in-house local authority contractors.

The explanation of the concerns about aluminium PRNs come in a letter which has raised concerns over the market to the Competition and Markets Authority and is sent by the Advisory Committee on Packaging.

CMA

The Competition and Markets Authority headquarters at Victoria House, Bloomsbury, London (picture: Philafrenzy)

The suggestion of the letter is that some businesses (not named by the ACP letter) are in effect sitting on PRNs for aluminium and refusing to sell them unless they get a higher than average price for them. It is not thought that such approach is illegal, and one expert commented that this was a weakness in the PRN system. However, there is the potential for the practice to be deemed anti-competitive in the sense of holding on for a higher price being a restrictive practice.

In the letter, which is signed by ACP chairman Phil Conran, the Competition and Markets Authority are told that: “In the first three quarters of 2018 the publicly available information on the National Packaging Waste Database (NPWD) managed by the Agencies showed 76,500 tonnes of aluminium recycling had taken place. The net UK target for 2018 is 94,500 tonnes. Quarter 3 recycling was reported as 28,000 tonnes and on the assumption that Quarter 4 will achieve a similar level of aluminium recycling, then a significant year end surplus looks likely.

“Normally in such a situation, PRN prices would be reduced by market pressure. However, where a small number of accredited exporters and reprocessors are responsible for significant volumes of recycling and they withhold PRNs from the market, this can distort the market leading to unnecessary price escalation.”

‘Restrictive practices’

The letter then states that “The ACP is deeply concerned that there appears to be restrictive practices applied by accredited operators, which undermines the principles and integrity of the system. As a result, producers are being forced to pay unreasonable costs for PRN/PERNs to avoid noncompliance, without any clear additional environmental outcome. The Agencies are unable to take any action to force accredited operators to place the PRN/PERNs onto the market, thus limiting any action against restriction of the supply of evidence. The ACP has therefore requested that the Competitions and Market Authority investigate the PRN/PERN market to determine whether any illegal activity, potentially in the form of restrictive practices, has taken place.”

Next steps

While any immediate response from the markets authority is unlikely to call for change, the referral is seen as being an important signal within the sector. It might, or might not, offer some protection to schemes who decline to buy aluminium PRNs at a high price, but they would then likely be in breach of the rules. Defra is thought to be aware of the situation as is the Environment Agency.

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