Even with a lower compliance target, the pace of PRN crediting needs to speed up over the rest of the year
Supply and demand of UK plastic packaging recovery notes (PRNs) is likely to stay tightly balanced up to the end of the year, possibly causing prices to level out or rebound, despite the UK Environment Agency reducing the penalty threshold for non-compliance to 83pc of targets. The key swing factors are to what extent companies have over-bought and are likely to sell back to the market, and to what extent export-generated notice availability will tail off.
Around 295,000 UK plastic PRNs need to be credited to producers in September-December for buyers to reach 83pc of their obligations for 2026, equivalent to 74,000 plastic PRNs/month, Argus analysis of Environment Agency data shows. The lower 83pc threshold was announced by the UK government in a regulatory position statement (RPS) last week. It is much fewer plastic PRNs than a 100pc obligation would require but is higher than the 73,000 plastic PRNs/month average in January-August, indicating that the final four months of the year could still see higher PRN demand than over the year so far, despite the RPS.
This analysis assumes companies will purchase their minimum penalty-free obligations. While producers' legal obligations remain unchanged, regulators have indicated they will not enforce against compliance schemes purchasing only 83pc of plastic obligations, UK compliance organisation Ecosurety analyst Matthew Austin says. If some companies continue to aim for 100pc compliance, demand could be even higher, Austin says, although he noted there has been little evidence of customers wanting to buy beyond their effective requirement, particularly given high compliance costs and wider economic pressures.
Tight supply of plastic PRNs up to the end of the year is expected to drive up prices. But plastic PRNs were assessed at £500/PRN ($660/PRN) on 9 October, £100 lower than a week earlier, and prices appear to have dropped further this week. Plastic PRN prices fell directly after the RPS was released and have continued to decline since then, although remaining above the historical average.
PRN supply could be buoyed by companies that bought more than 83pc of their requirement prior to the RPS selling on the secondary market. The amount available for sell-back is a key unknown, but these additional PRNs are likely to find buyers, given how tight supply is, market participants say. These supplies are likely to come from direct buyers only, as those in compliance schemes may choose to move PRNs between members, Ecosurety says. Scheme members' obligations are aggregated into a single obligation rather than managed individually.
Export PRNs set to drop
Supply of plastic packaging export recovery notes (PERNs) could decrease if the gap between current PRN prices and 2027 prices remains wide. A change in the UK's extended producer responsibility (EPR) regulation this year meant exporters can now only claim PERNs on material once it has reached its destination. Deals for 2027 PRNs have been reported at £300-350/t, around £100/t lower than current prices. Exporters may become increasingly reluctant to ship material that cannot reasonably arrive before year-end. This creates a potential cut-off point for shipments intended to generate 2026 PERNs, reducing supply in the final weeks. However, Andrew Letham from PRN marketplace The Environment Exchange (t2e) said that if December prices fall too close to the 2027 price, there is a risk of transitional tonnage leaking into 2027, which would tighten the 2026 market further.
Waste prices start to fall
UK waste bale prices started to fall after the lower PRN threshold was announced, and there have been indications of further downward pressure on prices this week. Prices for 98/2 bales typically react more quickly to PRN price changes as these are more exposed to export markets and have higher bale-to-pellet yields. However, UK prices for PP, HDPE and PET waste bales were all assessed lower last week, after PRN prices fell. Further changes in PRN/PERN values would be expected to influence bale prices in the coming weeks, because the value of recovery notes forms part of buyers' purchasing calculations. But spot material is in short supply at present, because many suppliers pre-sold in expectation of the intervention, not wanting to be caught out on the wrong side of price volatility, market participants say.
