Energy costs and inflation batter sector

Higher bills for gas and electricity, weaker economies and lower oil prices are a nightmare combination for scrap recyclers.

High inflation across Europe has not only affected the public but also most industries across the continent. Higher energy bills are another major challenge everyone is struggling with. The plastics recycling industry is also under great pressure due to higher costs. Electricity and gas prices have increased by multiples which is making the industry uncompetitive. Many recyclers face closure unless such increases are reversed.

Due to high inflation, we are seeing a big shift in consumption and spending. Many basic industries such as automobile and construction are being put on hold. Lower demand from these industries puts pressure on the plastics industry and thus demand for prime plastics has started to fall. Prime plastic prices have fallen by more than 30% in last two months from the cumulative effect of high inflation and lower demand from end users.

During July and August, when prime prices fell, plastic recyclers began to lose sales volume. Customers who are not obliged to use recycled granules quickly switched to prime to reduce costs. Many recyclers had to cut their capacity, and some were even forced to stop production as they were unable to sell their recycled granules. Although this was the holiday period when availability of recycled granules is typically low, prices still fell.

Crude price slump

Nymex listed WTI crude oil prices around US$ 120 per bbl in June but, since then, they have been falling – as low as US$ 87 per bbl. At the time of writing, they are moving around USD 90. This steep fall of over 25% in crude oil prices has boosted the business case for prime plastics. Even so, demand for prime plastics is sluggish.

Plastic scrap prices have also lost the ground in last two months. In June, LDPE natural film in bales were around EUR 600-620 but had slumped to EUR 450-470 in August. This was due to low demand and the holiday period when many recyclers were closed. Recyclers are unable to sell their stocks of recycled granules so they are not buying in.

On the other hand, Asian recyclers who did not want to trade with Europe during May and June on grounds of cost, started buying plastics scrap again in July and August as the prices are once again judged to be competitive.

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