Angus Macpherson assesses the PRN market for 2005 and looks ahead to 2006As the 2005 PRN market draws to a close it looks unlikely that the excitements of the 2004 market will be replicated. Supply of transitional tonnage is plentiful and demand in all materials can be met relatively easily. Prices are softening although the metals are striving to keep prices above £100. This is a far cry from the heat of the autumn where prices in both aluminium and steel breached £200 and at its highest, aluminium achieved £275 a tonne.
The main reasons for this were a reduction in the stated general recycling obligation as the year progressed and significant expansion in export - particularly in steel, paper and plastic which not only seems to have continued into the fourth quarter but also more than offset the reduction of paper reprocessing capacity created by the closure of the BPB Mill in Muggiemoss.
Overall this closure is part of a trend that has seen a reduction of paper reprocessing capacity in the UK by over 1,000,000 tonnes in the past five years. Experts predict that exports will represent 50% of the total number of PRNs issued by 2008. China is the primary destination for these exports where one mill alone is estimated to have over 3,000,000 tonnes capacity.
Both the plastic and steel already export in excess of 50%. Overseas markets are dependant on circumstances outside the control of the exporter such as exchange rates, shipping availability and political pressures. These had a significant impact on the steel market this year and it can be anticipated in future this will have a greater impact on the UK's PRN/PERN availability. From a reprocessing and exporting perspective so long as capacity was not locked into forward contracts at 2004 prices, 2005 will have been satisfactory year.
2006 arrives with a new set of regulations. Smaller companies may now opt for a fixed tonnage linked to turnover with a reduced agency fee. This may reduce both the obligation and the number of small denomination recycling PRNs. The recovery market has increased slightly however as those that take the small company option will no longer require recovery PRNs and there is a significant surplus in this market. Already the market is not indicating that this will have much impact on price.
The glass obligation has expanded significantly as have alternative uses and export markets. Traders are anticipating prices broadly similar to 2005. The same pattern is emerging in paper and wood where prices in the spot are starting higher than they began in 2005 but broadly on a par with where they will finish. Growth in the general recycling obligation as a result of franchises and leased packaging appears to have been factored in.
Concerns about fraud continue to undermine prices in the plastic sector as does the far faster than predicted growth in exports and it is anticipated to meet the growth in its targets with relative ease. The metals sector remains an enigma. Prices have opened significantly lower than last year's peak prices however uncertainty continues about their ability to meet targets. For aluminium, growth in exports may be the saviour.
Overall 2006 is starting higher than 2005 started, but lower than it finished. This softening may be the temporary impact of transitional tonnage but it looks as though it is here to stay. Forward market prices show the market expects an easier year than 2005 but as exposure increases to export markets, so do the risks. The impact of the changes in obligations, the plastic protocol and independent audits may have a more significant result on obligations than expected. Further closures of paper reprocessors may also create PRN shortages.
© Faversham House Group Ltd 2006. edie news articles may be copied or forwarded for individual use only. No other reproduction or distribution is permitted without prior written consent.