Recycled resin markets are likely to see limited upside moving into 2023 due to a price cap, with buyers not seeing much incentives in using recycled plastics, particularly if they were more expensive than prime material, says an article published in SP Global.
Lukewarm demand
“It is much easier and cleaner to use prime material and there is no need to use recycled unless it is for branding purposes,” a China-based trader said.
Demand for recycled plastics in the first half of 2022 had been lukewarm. It was mainly dominated by Asian exporters selling to brand owners that recycled to meet their brand’s sustainability commitments, as well as to buyers in Europe and the US where there are mandates to use recycled material.
But it was a challenge to maintain demand as recycled materials are sold at a premium over virgin materials delivered to customers, especially after considering freight costs.
High inflation recession fears
In addition, the recycled polyethylene market appears to be entering a lull period after the peak summer demand season and on the back of high energy prices and increasing labor costs. Sources also said margins have come into sharp focus amid double-digit inflation in some countries as well as fears of an impending recession.
Production processes of pelletizing require a lot of energy, and high energy costs were resulting in end-users earning thin production margins, market players said.
Recyclers also voiced concerns over continued cost pressures from soaring manpower and transport expenses. Thailand has seen diesel and electricity prices rise sharply this year, while labor costs in Malaysia have also increased following a 25% rise in minimum wages from May.
In addition, sources were skeptical that demand for downstream building products using recycled PE would hold, given the slowdown in the construction sector.
Unclear fundamentals for downstream polymer application, such as low-value plastic goods like garbage bags and polyester – again due to high inflation and recession fears – could also add to the price pressure on recycled polymers.
Lack of good waste feedstock hampers recycling
Global post-consumer bale supply will remain the biggest challenge to overcome for the rest of the year and into 2023 to feed both existing and upcoming demand from new planned projects.
With little post-consumer waste moving through the value chain, buyers have been caught short in many cases this year. Global buyers and sellers have wrestled with weekly, and in some cases daily, price changes from post-consumer bales through to finished pellets, largely driven by a lack of feedstock.
Plastic bag bans in several Asian countries as well as moves to incinerate rather than sort waste have led to low polymer waste collections, according to recyclers. Licenses required to import scrap plastics are also challenging to obtain, sources said.
In Asia, markets have recognized the growing global demand for recycled PET (polyethylene terephthalate) and polyolefins. Sources said that new reprocessing plant projects to help capitalize on this growing demand have accelerated. But these new plants will need to be fed with post-consumer waste. With plastic waste imports continuing to decrease following widespread bans, domestic waste collection has yet to substitute it in either volume or quality, sources said.
Prevailing freight costs and a healthy price spread should keep arbitrage windows open between Southeast Asia and the European and North American markets..
As summer began winding down in the Northern Hemisphere, US recycled polyethylene terephthalate bales reached what market participants hoped to be a pricing floor. By early September, US recycled PET curbside bottle bale prices had dropped by around 80% from their peaks in May, according to data from Platts, part of S&P Global Commodity Insights. This led to limited export cargoes with Europe offering a much more attractive netback.
Chemical recycling is also an option, but many producers are taking a capital-light approach on plastics recycling for now, a global producer said.
Total global recycled PE in 2023 is expected to be around 8 million mt/year, while global recycled PET is expected to be at 11 million mt/year and global recycled PP at 4 mil mt/year , with compound annual growth rate at around 5-10%, according to analysts at S&P Global.
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Source: S&P Global
