By Tiffany Holland, 24 November 2010
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Business and packaging compliance schemes waited for months for the coalition Government to announce its packaging recycling targets. Now, with the revelation that the targets will be rolled over to 2012, it is anyone's guess how the materials markets will respond.
"It is surprising the Government didn't choose to put the targets up. To me it is a missed opportunity," believes Scrap-Ex director of markets Gareth Goodall. "On the other side, it is very difficult in the economic climate to put an onerous burden on the industry with higher targets and more pressure and costs. But it is slightly disappointing that it missed an opportunity to do something about PRN oversupply."
Angus Macpherson, managing director at the Environment Exchange, believes that because of the current waste policy review, "it was hardly surprising that the Government has decided to retain the status quo until it is completed. But in this context there were two possibilities for the status quo: one was to keep the targets as they had been in 2010 and the other was to keep the targets proposed in the consultation. Given that it opted for the former, it was in some ways a surprise that any targets changed."
Plastic was one of just two materials to have its target moved up, from 29% in 2010 to 32% for 2011 and 2012. Plastic PRNs are currently trading around the 80p mark. Valpak director of sales and marketing Duncan Simpson believes this is because it is seen as one material that may not meet the EU targets for packaging. "Steel and plastic were the only materials that saw any adjustments because they are the only ones that could have dropped in the future," he says.
As an accredited reprocessor that sells plastic PRNs, Closed Loop managing director Chris Dow believes there is scope for improvement with the current system. "Something needs to be done to produce a PRN system that encourages the development of positive infrastructure and positive collection systems for positive recycling," he says. "The current system is expensive to administer, is deterring people from registering and not attracting investment."
"What market?" jokes paper recycler SCA Recycling director Steve Smith, when discussing paper PRNs. "As a country we are recycling at a rate way beyond the set target. The argument is that the system has been a huge success by setting targets and, therefore, it has done what it wanted to do by hitting those targets."
Targets for paper and card have rolled over for 2011 and 2012, remaining at 69.5, even though the consul-tation proposed targets of 72% and 74% respectively. Paper PRNs are currently trading around 65p.
"Unless the Government sets targets much higher, creating a greater value for PRNs, the system is not going to do anything"
Smith points out that the disbanding of the Advisory Committee on Packaging could be a signal to reprocessors and compliance schemes that the new Government might "kill the PRN system" in the waste review due next spring. But he adds: "It is highly unlikely because other materials need to do more recycling, and I doubt they would selectively take certain materials out of the system."
He explains that paper reprocessors such as SCA still get some value from PRNs but they simply pass it through the business. "It makes no sense to have it for paper now."
Paul Briggs, commercial director of reprocessor Mark Lyndon Paper Enterprises UK, believes the PRN system needs to be scrapped because of the high level of bureaucracy to even register with the Environment Agency: "Unless the Government sets targets much higher, creating a greater value for PRNs, the system is not going to do anything. The recycling rate will continue to climb because of the landfill tax escalator."
But Macpherson stays positive about PRNs, saying they could act as a safety net to sustain recycling levels if something unexpected were to happen such as China ceasing to import UK recovered paper.
Glass has seen a massive drop in price in the past few weeks because of its reduced PRN value, which has fallen from £20/tonne to the current £2.50/tonne. This has concerned recyclers which relied on the PRN revenue to subsidise profit, and is leading them to opt to charge a gate fee of up to £10 a tonne for glass. The recycling target for glass rolled over at 81%.
"The only surprise to me is that the Government held on to the targets for so long, which seems to have caused more harm to the markets," says an industry insider. "I thought that because it was taking so long to publish the targets it was changing them in some way - but it didn't, so why not give businesses more notice and the effect on the market might have been a bit more gradual. It's bad enough not having a target increase, so the delay is unacceptable."
Because of the low glass recycling target, there is a risk that recycling rates will go down because local authorities will not want to continue collecting something at such expense for not much profit, while businesses will not be able to afford the cost of recycling it. But, in its favour, is the fact that the material is heavy, which would deter it from being dumped in landfill, where it would incur landfill tax.
British Glass recycling manager Rebecca Cocking says: "Publication of the targets could stifle progression of recycling because the uncertainty and time delay has meant that companies couldn't commit to contracts because they were waiting on targets.
"It may even mean that people might import glass instead of using UK-collected material because we are only obligated to recycle packaging from our own country. Importing material will be cheaper because the company will not have to become accredited and the glass will be of a better quality than UK material."
Before the Q3 figures for issued aluminium PRNs were published, obligated aluminium packaging producers feared it would be a close call over whether the sector would meet its target. But following good Q3 results and a rollover in packaging recycling targets for the next two years of 40%, some in the aluminium packaging industry now think the goal is too low.
However, aluminium is the only material within the PRN system currently being traded at anything significantly above £1/tonne, at £25/tonne.
Alupro executive director Rick Hindley says: "From our point of view, there is now not enough money being raised from the PRN system to reinvest in stimulating aluminium collections. Aluminium is different from materials like glass in that it holds its own value without the need for PRNs, so there is no worry for businesses on that front. It is just disappointing that infrastructure funding will be low."
Hindley explains that the 40% target is lower than what the UK achieved for aluminium recycling in 2009, so there is no driver to boost the PRN market. But he is confident that because of the value of aluminium, demand and therefore recycling are unlikely to stop improving.
"The problem is that if we aspire to high recycling rates after 2012, it's going to be very difficult to achieve," he adds.
Furthermore, he highlights an anxiety felt across all materials sectors that smaller reprocessing companies may decide not to register in future because they feel it is not worth their while in terms of costs and payback. If this happens, it could create an artificial fall in recycling: "It may look as though recycling rates have fallen because fewer PRNs are being reported because fewer companies will be registered, but actually the same amount is being recycled."
Steel was the only other material to have its target increased for the next two years by 2%, rising to 71% for 2011 and 2012. Like plastic, it seems to have been done to ensure that EU targets are met. Steel is currently trading around £1.03 per tonne.
According to Macpherson, reporting rates are low and falling: "Does this signify a substantial level of ‘free riding' in the hospitality industry? And, if so, why has it not been stopped? Or might it represent significant lightweighting of steel packaging placed on the market? If so, is the quantity of steel packaging being placed on the market being overestimated and concerns that the European metals target might be missed are needless?"
British Metal Recyclers Association director general Ian Hetherington believes the targets are unlikely to affect metal recyclers in any way: "Recycling rates could always be higher, so we would choose to see a retention of the PRN system," he says. "It wasn't a surprise that, given the uncertainties arising out of the spending review, it would be very difficult to cut budgets while raising targets for businesses."
"The interest in wood recyclers and PRNs has waned to a very low level, to the point where a lot of them are no longer registered on the scheme," states technical adviser to the Wood Recyclers Association Toby Beadle. Indeed, wood PRNs are currently trading at around 55p per tonne. With targets rolling over, it looks as though this participation level may decline further.
"The amount of packaging has declined because of the state of the economy and this high-quality material would usually be used for animal bedding. Now, with the price of straw being exceptionally high, we're hoping there will be a recovery of animal bedding," he says. "I don't think anybody is going to take any more interest in PRNs now. There is no incentive and people just cannot be bothered."
Goodall agrees: "It might be interesting to see how many firms bother getting accredited in future."