The Link Between Raw Material Pricing and Recycling Evidence Note (PRN) costs

A Packaging Recovery Note is a piece of certificated evidence that proves that packaging waste has been recovered and reprocessed or exported for reprocessing. When materials are exported for reprocessing, this is referred to as a Packaging Export Recovery Note (PERN). The material has a value, and the PRN has a value. The pricing dynamics of packaging recovery notes (PRNs) are complex, sometimes relating directly to material market value, sometimes being more influenced by supply and demand factors. It might seem counterintuitive, but a decrease in price of virgin material can sometimes cause a rise in the price of a PRN.

In this article Clarity explores the relationship between lower virgin material prices and the consequent rise in PRN costs.

PRNs and PERNs are the mechanism through which businesses obligated under the packaging regulations comply with legislation. Compliance in this system is achieved by purchasing volumes of PRNs determined by the amount of packaging they have placed on the UK market, and the recycling target for that particular material.

PRNs are sold on an open market which means that prices fluctuate according to supply and demand. The PRN system is designed so that when there’s a shortage of packaging recovery notes, the price of the recycling evidence will increase, stimulating the market, subsequently increasing the level of recycling; higher prices usually mean more recycling is being done.

Prices for each grade can also fluctuate due to economic, political and social variables. The Clarity team negotiate this volatility for our clients, and aim to keep them informed of these changes, in order to offer you the most cost-effective and low risk solutions.

Supply and Demand:

When the prices of virgin materials decline, it can become more cost-effective for businesses to use these materials instead of recycled alternatives. As a result, the demand for recycled materials decreases. The reduced demand for recycled materials lowers its end market value, therefore increasing the price of a PRN to ensure that UK recycling targets are met, and adequate financial support for recycling infrastructure and waste management is achieved.

Profitability of Recycling Operations:

The profitability of recycling operations can be tied to the price dynamics of virgin materials. When the prices of virgin materials are lower, there is usually a higher demand for this material, meaning that recyclers may face increased financial pressure due to having to reduce the price of their recycled material in order to compete with low priced virgin material. Reduced demand for recycled materials can lead to a decrease in revenue generated from their sale, making it difficult for recycling facilities to cover their operational costs. The increased price of PRNs serves as a mechanism to mitigate these financial challenges and sustain the recycling industry.

Encouraging a Level Playing Field:

Incentivising the use of recycled materials and fostering a circular economy requires a level playing field between virgin and recycled materials. If the prices of virgin materials are significantly lower than those of recycled materials, businesses may opt for the former due to cost considerations. This undermines the market demand for recycled materials and impedes progress toward sustainable practices. By increasing the price of PRNs, the market is stimulated therefore increasing the level of recycling, lowering the price of recycled material and maintaining the competitiveness of recycled materials, thus ensuring a fair and balanced market.

The inverse relationship between lower virgin material prices and the increased price of packaging recovery notes (PRNs) highlights the intricate nature of the recycling ecosystem. While it may seem counterintuitive, this pricing dynamic is necessary to maintain the viability of recycling operations, support the demand for recycled materials, and foster a circular economy.

Pricing of PRNs are impacted by many different factors, by understanding the underlying factors that drive PRN pricing, stakeholders in the packaging industry can navigate the complexities of packaging compliance and contribute to a sustainable future.