The decision yesterday by four of the world’s largest oil producing countries to cap production was met with pessimism by traders, causing the market gains from the beginning of 2016 to be lost and pressure to remain on the UK plastic recycling industry.
Saudi Arabia, Russia, Venezuela and Qatar have agreed to cap their production at January levels in efforts to set a floor for the fledgling oil price. However soon after the agreement was made, Iran announced it would continue increasing production, casting doubt on any hopes that supply would be curtailed at all. Subsequently oil markets have lost their January 2016 gains and it now appears these were made on the expectation of a supply cut.
The demand for oil is also likely to fall as we move further into 2016 with the share price collapse of many of the world’s financial markets and the slowdown of growth in China. Some analysts have forecast that the 6.9% growth China reported for 2015 has been wildly overestimated and it is clear that China faces a difficult 2016.
These factors will surely see the flood of oil and the downward pressures on price continue into 2016. Any sustained low oil price will hit plastic recyclers in the UK as they lower their material prices to compete with the virgin plastic price. This in turn will put pressure onto the plastic PRN price in 2016. This should dampen the price fall caused by the Environment Agency recently changing the targets for Plastic PRNs in 2016.
At a time when plastic recyclers are being hit by low material prices and a potential fall in their PRN price caused by regulatory change, could these additional pressures cause some recyclers to leave the market permanently? The plastic PRN market needs to ensure that these troublesome conditions don’t lead to an exodus of plastic recyclers in the long run as this could amplify and move our problems further down the road into 2017 and 2018, as fewer recyclers will lead to fewer PRNs issued and an overall higher PRN cost for producers.
The plastic PRN market is now in a delicate position. How compliance schemes, recyclers and regulators react to this situation will influence the PRN costs for producers into the future.
Throughout 2015 we have been working with producers, recyclers and regulators to characterise the challenges the plastic PRN market faces in the long run, and into 2016 we continue to work hard behind the scenes to support both producers and the recycling industry to ensure a sustainable future.
If you want to know more about how this could affect your future compliance costs, please don't hesitate to contact our specialists.
Key account manager
As key account manager Richard helps our largest clients manage their legal obligations under Packaging, WEEE and Batteries legislation. His background in economics helps our members manage their budgets and strategically procure evidence.
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