Turbulent end of year ahead for PRN market

In this month (December 2005), PRNs can be issued by accredited reprocessors as either 2005 notes or as 2006. The 2006 notes can be used by packaging producers or compliance schemes towards next year's producer responsibility obligations.

Movement in the prices of PRNs is being fuelled by the publication of new data by Defra on reprocessing in the first three quarters of 2005.

The data suggests that industry looks to be fairly comfortable in the task of meeting most of the packaging waste recovery targets set by Defra for 2005. However, current trends suggest there could be a slight shortage in steel PRNs, while aluminium PRNs are likely to be scarce heading into the year end.

The following table shows reprocessing levels of packaging waste in 2005 – including an estimated figure for the last quarter of 2005 – and the potential surplus of PRNs this year: (story continues after table)

Reprocessors may well carry over these surplus PRNs into 2006, issuing them as January PRNs in order to keep PRN prices relatively stable this month. However, if they carry over these PRNs into a 2006 market where PRN prices are low, they risk losing out on income that could have come from a sale this month.

General
Paper, wood, plastic and glass streams look comfortable heading into the last month of 2005, and as a result PRN prices have started to drop. Paper and wood are often used towards obligated producers' “general recycling” quotas, and current trends suggest a large surplus of PRNs available that could be carried over into 2006.

Paper PRN prices have already started to drop towards 10 per tonne, and last week saw a 20,000 tonne lot of paper PRNs suddenly sold in the fear of a plummeting price. Wood PRN prices have been a little slower to slip, and are currently changing hands for about 12.50 per tonne.

Next year, both the paper and wood packaging recovery targets increase by only half a percentage point each (see letsrecycle.com targets report), and as a result reprocessors look resigned to relatively low prices for PRNs in 2006.

Glass
Glass PRN prices are currently falling towards the 10 to 12 mark as the surprisingly strong performance of reprocessors this year means there could be a surplus of more than 180,000 tonnes worth of PRNs. Analysts believe that much of this will be carried over into next year, which should mean glass PRN prices do not fall much further.

Next year will see significantly increased glass recycling targets, which will be quite a challenge despite the sizable increase in reprocessing levels seen this year. Compliance schemes are already preparing themselves for a PRN price that could be over 20 or 30 per tonne.

Plastics
Plastics PRN prices dipped slightly as the end of November approached, but have crept back up to regain their position at about 39 to 43 per tonne. Reprocessors are looking to carry over PRNs to maintain their value, since the data published by Defra last month suggests a healthy surplus this year.

To meet next year's targets, compliance schemes expect that a growth of about 30,000 tonnes of plastics reprocessing will be needed. But, since this year has seen a growth of about twice this level, schemes are not expecting dramatically higher plastic PRN prices next year.

Reprocessors have been encouraged so far by the relatively stable PRN price after the Defra data came out. One suggested that if the price remains as it is going into the end of the year, about 8,000 tonnes of PRNs will be carried forward into 2006, but if the price drops more PRNs would be carried over.

Metals
The expected recovery in steel exports has not been enough to strengthen the supply of steel PRNs going into the carry over period. Although exports in the third quarter were considerably up on those in the second quarter (from 33,240 tonnes in Q2 to 54,955 tonnes in Q3), domestic reprocessing has actually fallen (from 46,100 tonnes in Q2 to 38,094 tonnes in Q3).

Annualising the figures and comparing them against what is needed this year suggests a slight shortage of steel PRNs is likely, perhaps as much as 1,000 tonnes' worth.

Metals experts have warned that quarter four does not look promising domestically, and expectations are that the high prices of steel PRNs will continue, in the order of 180 per tonne on the spot market.

Aluminium remains difficult, with calculations based on reprocessing so far in 2005 suggesting this year's targets should be met with a little to spare. But who holds the little to spare – and whether they decide to carry it forward – will determine whether packaging producers or compliance schemes comply this year.

Last year saw some compliance schemes denying that they were carrying over metal PRNs into this year, but nevertheless over 1,000 tonnes worth were carried over into 2005. If that level of carry over is seen again this year, there is likely to be more obligated organisations claiming “reasonable steps” were taken as they fail to comply fully.