Q4 Packaging Compliance Costs - October to December 2018

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1 Q4 Packaging Compliance Costs - October to December 2018 Your 4 th quarter statement of costs, which are based on your submission return and the PRN charges, set by the scheme following discussions with re-processors for the final quarter of 2018 will follow next week. This statement covers the period 1 st of October to the 31 st December. The invoice to cover this period will also be with you shortly. Q4 Cost Summary Despite the markets/sectors optimistic outlook at the end of quarter three, PRN prices for all materials have either remained high or have continued to rise as a number of factors have combined to force costs up for obligated producers. Never before has there been pressure on all the materials at the same time as one problem in the paper sector has resulted in a knock on effect in other materials such as in glass, steel and more importantly in the UK s general recycling requirement. This combined with issues in the aluminium market and a possible shortfall in the wood sector has resulted in costs never before experienced in 20 years of packaging compliance. As always Recycle-Pak will do all it can to keep costs to a minimum and keep members updated at all times on how the UK is performing and on how the market is developing. Materials Wood As outlined in previous correspondences, the main concern for Compliance Schemes and obligated producers such as Recycle-Pak members is the possible shortage of wood PRN s. This is due to a number of factors including the increased targets set by the government and increased competition from the Refuse Derived Fuel (RDF) sector. The Government increased the wood target for 2018 from 22% in 2017 to 38% for this year, increasing the demand by 181,549t. The increase alone would have put pressure on the sector to meet the required demand but it also has to compete for good quality wood waste with the Refuse Derived Fuel (RDF) sector. These biomass plants receive Government subsidies for energy production, so depriving the wood recycling sector of quality material. It is hoped that the increased PRN prices will enable the wood sector to compete with RDF for waste material, something they haven t been able to due in the past. The most recent figures that were published on 10 th October indicate a possible shortfall for 2018, this could have a significant legal impact on Compliance Schemes but more importantly the supply verses demand of the PRN market could see wood PRN s reach levels usually reserved for plastic. Historically, wood PRN s have hovered around the 4 per tonne mark but have recently risen to levels usually reserved for plastic, around 65 to 70 per tonne.

2 Plastic As highlighted in previous letters, the plastic sector has been greatly affected over the past year due to a serious slowdown in the amount of post-consumer plastic waste that was exported to China, the UK s main market for this material. This was due to the introduction of a number of initiatives introduced by the Chinese government such as Blue Sky campaign in 2018 as well as the ban imposed on the import of certain types of waste, such as post-consumer plastics, which came into effect on 1 st March The above restrictions have resulted in the sector having to find alternative markets such as Vietnam and Malaysia. Unfortunately, both Malesia and Vietnam have been forced to impose import restrictions of their own following the significant increase in the volume of waste entering their countries since Chinas imposed their ban. The amount of waste plastic imported into Malaysia has quadrupled compared to the same period in 2017, resulting in seaports becoming overwhelmed. As a result, the Malaysian government recently announced that they had revoked plastics waste import licenses for 114 factories around the country, although facilities with approved permits may continue to import material. The Vietnamese government have also announced that they would not be issuing new licenses for waste import for the foreseeable future and are going to follow this with a crackdown on smuggled waste. It was reported by Reuters that approximately 6,000 containers of metal scrap, paper and plastic remain in customs points within Vietnamese ports waiting to be processed. All of the above combined with the annual plastic target increase has resulted in Plastic PRN s remaining high throughout Paper A combination of factors previously outlined in correspondents has resulted in paper PRN prices reaching levels never before experienced in the UK. A severe slowdown in exports due to factors summarised below has resulted in extreme pressure on re-processors to complete contracts with compliance schemes. In addition most general recycling obligations are now being met with paper rather than wood which have traditionally met this requirement. In summary and to remind members: The paper sector was also affected in 2017 due to the Chinese government s decision to revoke import licences/ quotas on shipping of paper to China. This resulted in the price of paper PRN s reaching a level not seen for many years and which has continued throughout 2018.

3 In addition to the above, a combination of the ban on the import of mixed paper to China introduced on the 1 st January 2018, the decline in RCP imports to China and the introduction of the Blue Sky 2018 initiative has placed considerable pressure on the paper sector. It is hoped that the prices will stabilise following the publication of the rd quarter figures. Aluminium Prices for aluminium PRN s have continued to remain high on the back of production figures rather than the effect of the PRN market in general. Why this is happening is not clear, however, some experts point to the tariffs being applied to aluminium exports to the US may be having a negative impact on UK production. Whatever the reason, it is hoped that the prices will fall following the publication of the rd quarter figures. Steel & Glass As outlined in previous correspondence, the price of glass and steel PRN s has been affected by the high price of Paper and Wood. This is due to the fact that in previous years, paper and wood PRN s, which have been relatively cheap, have been used to meet general recycling obligations. This has resulted in buyers reverting to other materials such as Glass and Steel to cover their general obligation, which has in turn lead to the prices of PRN s for these materials to increase to levels not seen for a number of years. PRN Outlook The outlook for the remainder of 2018 and into 2019 is not positive, however there are two sets of figures yet to be published, the 3 rd Q figures, which are due to be published at the end of October and the final set due out in January next year. It is hoped that improved figures will help the market to stabilise and result in a fall in PRN prices for most if not all materials. For further information and for the latest news, please visit the Recycle-Pak web site at On a positive note Recycle-Pak has all but secured all PRN requirements for 2018 with just the final quarter PRN to be purchased from current contracts. On completion, the scheme will present a Certificate of Compliance on behalf of all members to the Environment Agency so bringing to a conclusion all legal requirements placed on the scheme for this year. All members will be notified and a Certificate of Compliance issued for your records in January Thank you again for participating in the scheme for 2018, we believe we can continue to deliver cost effective compliance and a high level of personal service for our members in 2019.

4 General News Update Resource and Waste Strategy As you may be aware, the Department for Environment, Food and Rural Affairs (DEFRA) will be publishing their Resources and Waste Strategy (RWS) in November, which could results in major changes to the current PRN system. The Resources and Waste Strategy follows on from a series of other strategies and policies during the past year such as the 25 year environmental plan and is expected to address public concern over packaging waste and pursue greater responsibility from producers. One of the core policies of the strategy and one which will influence its contents will be full cost recovery, which is a concept that was also included as a core component of the recent EU s Circular Economy Package (CEP) ( At present, it is estimated that producers are currently responsible for around 10-20% of the costs of dealing with packaging they place on the market. The concept of full cost recovery, as outlined in the CEP, requires producers to be responsible for a minimum of 80% of these costs by At the recent Recycling and Waste Management exhibition, DEFRA stated that they are currently considering three options to reform the current PRN system, these are: 1. A free market approach, where producers pay upfront for their obligation and then get refunded once proof of recycling is provided. 2. The creation of a new central body that will collect the required data and deliver the necessary evidence of recycling. This will be done via contracts with local authorities, sorters, waste collectors and re-processors. 3. A similar system adopted for WEEE, where each producer will be allocated a market share. This approach will require a producer to recover evidence for the percentage of packaging they place on the market. For example, if a producer places 5% of packaging on the market, then they will be obligated to recover the same percentage of material. Producers will achieve this by joining one of a number of collective compliance schemes to recover their required evidence. DEFRA will also publish a consultation that will accompany the strategy (or shortly after it), that will address the following: 1. Packaging Targets 2. Reforming packaging regulations 3. Deposit Return Scheme

5 Recycle-Pak will respond to the above consultation on behalf of its members and will keep members fully informed throughout the process via our quarterly letters and news articles on our website that can be found at Packaging Scheme Forum (PSF) Finally, Recycle-Pak is pleased to announce that we are a member of the recently formed Packaging Scheme Forum (PSF). The PSF members consist of 90% of all registered UK packaging compliance schemes whose members represent 97% of producers registered with compliance schemes in the UK. The main aim of the PSF is to provide guidance, insight and feedback on the existing Producer Responsibility Obligations (Packaging Waste) Regulations and will seek to foster open and collaborative dialogue between government and industry bodies. The second aim is represent the interests of scheme members and to mitigate any changes which could have a detrimental impact on member s costs.