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Low demand hinders switch to European processing

Import restrictions on plastic scrap in South East Asia has encouraged greater recycling capacity in the EU but prevailing prices haven’t helped.

It’s fair to say that 2019 was a very challenging year for the whole plastic world. On the one hand, while greater recycling capacity was established in Europe, demand for recycled granules remained sluggish. This was most definitely against the expectation of those European recyclers who had invested heavily in solutions to the major volumes of packaging waste that was being generated on the continent.

The demand for recycled granules remains low due to the high availability of recycled material and low virgin plastic prices. Virgin prices of polyethylene and polypropylene have been trading very close to those for ethylene and propylene. This prompted a worldwide boost for those facilities producing virgin.

Demand was so low that producers even had to lower the price of virgin plastic. They didn’t have any choice. Virgin plastics were available so cheaply that end-users increasingly switched to virgin plastics rather than recycled products. This brought negative sentiment to those European recyclers.

In the last quarter of 2019, many waste management companies in Europe were working hard to keep plastic scrap within Europe. This was partly down to bad publicity as their names were highlighted whenever a cargo was rejected by an Asian country and had to return to the originating country. Waste management companies no longer want to be associated with the export of plastics to Asia.

As a result, this brought additional raw material for disposal by local European recyclers. The big question is: ‘Do we have capacity both to recycle the waste being generated in Europe and the capacity to use the resulting recycled granules?’

In December 2019, plastic scrap prices remained stable with limited demand from Asian countries. Indonesia and Malaysia were often the only the choices left from the Asian countries who had been buying plastic scrap regularly from Europe.

At the end of November, KSO, the inspection company responsible for checking and controlling waste before it is shipped to Indonesia, announced that the country’s ministry of trade was planning to introduce a new regulation ‘84/2019’ to replace the former ‘31/2016’, which governs the shipment of waste. KSO said the result, pending clarification, was the suspension of inspections for cargoes to Indonesia. This brought negative sentiment to the markets and prices softened. 

In the middle of December, KSO briefed exporters about the new rules that would require every exporter to register for a business licence with Indonesian ministry before they could send any exports to that country. At the same time, the exporter can ship goods only from the own country in which the business is registered and those goods must be inspected in that country.

The consequence is that very customer/recycler looking to export to Indonesia must now ensure pre-approval for each shipment. This regulation is intended to maintain strict controls on every shipment and to ensure traceability. In the event of any ‘wrong’ shipment, the exporter will be liable and have to take back the cargo.

This new rule has yet to be implemented but it appears it will be applicable as soon as the recycler applies for the renewal of their existing licences.

India, which had banned the plastic scrap, is standing firmly by its decision not to allow any imports of plastic waste. Domestic recyclers are being permitted to carry on as usual for the next six months and this extension gave hope to some that the ministry of environment might reopen ports to allow imports again but, as yet, nothing positive has been announced.

Sea freights from Europe to South East Asia and the Far East increased significantly at the end of the year ahead of the impending changes in regulations requiring the use of low sulphur fuel. Freight was expected to remain stable throughout January.

This market analysis is part of our January/February 2020 issue.

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