Continuing gloom in secondary markets

Despite less pressure from high energy costs and inflation, trade continues to struggle in the face of cheaper prime plastics and low demand.

Although most European countries have got a grip on high inflation and the energy crises which damaged the industry have eased, the fear of recession is still a challenge for many. With both factors generally under control, it was assumed the most challenging problems would be over and the industry would run like before, covering up the shortfalls of 2022. On the contrary, industrial growth is going down month on month.

Low demand and a high stock of finished goods are pushing down prices of all raw materials. Many plastic converters are not able to maintain their production levels and therefore have reduced their working capacity to almost 50% in the absence of orders from their clients. The availability of raw materials is so easy that converters do not want to take a kilo more than their immediate needs, which brings pressure on the sale of raw materials.

PRICES DROP

LDPE prime plastic prices have fallen by more than 30% this year. At the beginning of this year, prices were in the range of EUR 1 300-1 350 per tonne on the spot market but by June had slumped to as low as EUR 900-950 per tonne. The same is happening with PP and HDPE and prime prices for these materials have fallen more than 25% in the last six months.

At the same time, there has been no great change in the crude oil price, which is the base for polymers. Nymex-listed WTI crude oil was trading in the last six months with an average of around US$ 73 per bbl (ranging from 66 to 81). At the beginning of January, it was at US$ 80 per bbl and the current price of around 72 per bbl is only a reduction of 10%.         

As prime plastic prices fall, the demand for recycled plastics is substantially affected. Yet recycled plastics are viewed as a cheaper alternative to prime plastic. So as of now, when prime plastics are available at low prices, the demand for recycled plastics granules is substantially low. The biggest challenge is for the recyclers who have to meet the costs of collection, segregation, distribution and recycling.

REDUCING CAPACITY

In the current scenario, where demand for recycled granules is heavily affected by the low prices of prime plastic, European recyclers cannot run their factories at a loss and have opted to reduce their recycling capacity, cutting the price of plastic waste.

Low realisation of sorted material will affect the quality of the scrap as the cost of segregation will not be paid, meaning many waste streams will remain unsorted. In the absence of good prices, waste management companies may opt not to add value by high levels of segregation to achieve better quality.

This year the EU is expected to approve a ban on the export of plastic waste to non-OECD countries. Based on the current market conditions and the introduction of such a ban, there will be no alternatives other than domestic EU recyclers. The EU should think about keeping healthy competition to grow the industry and alternatives should be considered to maintain the basic requirements of efficient recycling.

TRADE CHALLENGES

The second session of the Intergovernmental Negotiating Committee (INC) looking to develop an international legally binding instrument on plastic pollution, including in the marine environment, took place from 29 May to 2 June at the United Nations Educational, Scientific and Cultural Organization (UNESCO) headquarters in Paris, France.

The INC gave a mandate to the chair to develop a draft legal text for the treaty but without specific guidance on priorities and focus. As a result, future negotiations on a legal text are expected to be challenging. Gemini Corporation participated in the process and the chief sustainability and strategy officer Vikas Chhajer spoke on the role of trade measures in future instruments against plastic pollution.