The European recycled polyethylene terephthalate (R-PET) market has entered one of the most turbulent periods in its history as industry veterans and newcomers alike struggle to predict the outlook as they meet at K Fair.
In a case of ‘be careful what you wish for’, the R-PET market has gone from tight supply and record-high prices in the first half of the year to massive oversupply, slow demand, and record-breaking price drops in October.
Although record-high post-consumer bottle (PCB), flake and food-grade pellet (FGP) prices were always expected to ease, the speed of the downturn since the summer has taken the market by surprise.
Free delivered (FD) northwest Europe (NWE) colourless (C) PCB, C flake and even mixed coloured (MC) flake monthly prices all posted the largest single price drop since ICIS introduced the quotes in 2006.
There are several reasons for this:
● Large PET bottles consumed in summer entered recycling stream
● Low PET prices prompted a significant substitution away from R-PET
● PCB and flake buyers’ stocks are high and buying appetite is down
● Macroeconomic uncertainty, high inflation, slow end-use demand
PCB stock levels in September and October have become so large in some cases that some waste managers have asked customers if they could use any spare storage. PCB quality can degrade the longer it is kept in storage, especially outside. Some buyers have also tried to buy lower-priced bales to bring the overall cost of the product down. Flake producers are also sitting on a lot of stock, forcing some to slash prices to shift material and free up some much-needed cash flow. However, lower prices have not translated into higher demand.
ENERGY AND ECONOMY CONCERNS
Players in the European R-PET market say post-summer demand for recycled content has failed to materialise, and many do not think it will return anytime soon. Brands and fast-moving consumer good (FMCG) companies are revising or reconsidering their recycled content targets, and several suppliers to both sectors have noted a drop in volumes, which they expect to continue into 2023.
This is despite the EU's mandated target of 25% R-PET content in PET beverage bottles by 2025 creeping closer. In the sheet and thermoforming sector – which does not yet have an EU-mandated recycled content target although the EU has plans to introduce one – packaging companies will continue to save on costs by using cheaper PET and cutting the volume of R-PET content in products.
In addition, rising inflation and recession fears have prompted consumers to change purchasing habits, in turn impacting R-PET demand. However, rising energy costs are likely to be the biggest concern and challenge for the R-PET market for the foreseeable future. In Europe, recyclers have seen their electricity bills double, triple, and quadruple, impacting the final price of flake and pellets in a market which is already incredibly price-sensitive. How a country’s government or energy provider handles the expected rise in electricity costs will put a recycler at an advantage or disadvantage depending on where it is. Recyclers in Italy already pay considerably higher electricity costs compared to neighbour Spain, according to one Italian recycler in mid-October. Adding to this is the concern that the war in Ukraine will cause a reduction or even a cut in Russian gas supplies to Europe, and the prospect that this could stop R-PET production. If gas prices also rise in winter, consumer habits may change again, making predictions about demand even harder.
The only certainty is uncertainty as the cold winter draws in. Some just want to settle in and ride out the coming storm, hoping 2023 will offer a sunnier outlook - but few expect to see the dark clouds currently looming over the R-PET market to clear any time soon.
Matt Tudball is the Senior Recycling Editor at ICIS