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Cold winds continue to blow for European plastic recyclers

Demand for European mechanically recycled polymers is the lowest it’s been for several years, costs remain high and producer margins for many grades are narrow, according to specialists at Independent Commodity Intelligence Services (ICIS)

Mark Victory, senior editor, recycling at ICIS says reduced operating rates and protracted convertor outages, coupled with persistent expectations of consolidation, are major concerns this year for all recycled polymers.

The current malaise in the recycled plastics follows on from several years of market tightness, particularly for packaging grades, and record high or multi-year high prices across the majority of recycled polymer grades in H1 2022.

‘Nevertheless, there remain underlying structural shortages – particularly of packaging suitable material – and sustainability pressure from regulators and consumers shows little sign of abating.’

Victory believes the pendulum will swing back from its current extreme in the mid-term but the timing, depth, and what the market will look like when it does remains unclear.

Slump in consumption

ICIS says market estimates for Q2 suggest consumption has fallen by up to 50% year-on-year for non-packaging applications and up to 30% across packaging, underperforming expectations since Q4 2022. Victory says this is due to a combination of:

  • Bearish macroeconomic conditions and high inflation minimising consumer purchasing power
  • Ongoing high costs, chiefly linked to energy, reducing industrial output
  • Colder-than-average temperatures in the first half of 2023 blunting beverage, horticulture and outdoor furniture demand
  • Substitution to comparatively low-priced virgin and off-spec markets.

Consolidation risk

Across Europe, inflation, energy costs, government support measures, local supply and demand conditions have led to deeply fragmented markets widening the spread of prices across Europe. Victory points out this is compounded by ‘the frequent appearance of distressed cargoes on the market in various parts of the chain, with some players needing to offload material to free up storage space or to raise cashflow’.

He adds that, with many small and mid-sized players trying to keep the lights on, there are warnings of potential consolidation in 2023, either through mergers and acquisitions or bankruptcies. ‘High prices and supply shortages seen in recent years led to an increase in investments in things like multi-stage infrared sorting technology in the recycled polyolefins chain, investment in flexibles recycling, and investment in flake to preform plants in the recycled polyethylene terephthalate (R-PET) space. Many of these investments have yet to be recouped.’

Suppliers unnerved

The recycling supply chain had built considerable momentum in improving supply, in terms of both volume and quality but much of that was lost during 2023 as recycle rates regressed, says Helen McGeough, senior analyst, plastics recycling, ICIS.

‘Regaining this ground adds to the multitude of challenges recycled polymers markets face as a sector already under intense scrutiny by consumers and legislators.

‘Not only are investments on hold because of financials, but the U-turn by many end users in their attitude to recycled content levels so far in 2023. This has not only unnerved suppliers, but severely damaged confidence levels that demand will return before the end of Q1 2024.

‘Yet demand will return as 2025 goals approach and the question is how this demand manifests itself. No player wants a repeat of 2022 market conditions but crave more stability to keep a steady momentum towards the shared goals of greater circularity of plastics.’

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