2024 was supposed to be a year of recovery after a horrendous 2022 and 2023, but already the European recycled polyethylene terephthalate (rPET) market faces yet more uncertainty and tough decisions after years of unforeseen shocks and challenges.
A pattern of volatile feedstock prices, contrasted by the inconsistent demand for recycled products, underscores a broader narrative—one where the sustained viability of rPET producers – particularly flake producers - hangs in the balance.
Cheap PET imports from China in 2022 and 2023 dragged European PET prices down as EU-based sellers struggled to compete with lower-priced imports. This led to many recyclers trying to lower their costs to stop customers abandoning rPET and substituting to virgin material. Cheaper rPET imports from outside the EU are still a source of concern for Europe’s recyclers, some of whom are experiencing yet another year of squeezed margins and zero profits.
The market turmoil is symptomatic of broader forces at play. As Paul Hodges, Chairman of New Normal Consulting, points out in the recent ICIS Think Tank podcast, Plastic recyclers need maximum protection as chronic overcapacity hits virgin markets, "The rPET sector, once the beacon of sustainable development in the plastics industry, is now navigating a perfect storm of adverse conditions that risk capsizing its progress."
Feedstock costs have been rising, with post-consumer PET bottle bale prices in Poland reaching their highest levels so far this year in March before retreating in April. Meanwhile, the currently low prices of virgin PET have significant potential to cap the selling prices of rPET flake. This situation traps flake producers between climbing input costs and buyers wanting rPET volumes but at PET prices, eroding recyclers’ operational margins to perilous levels.
Even the more resilient Rpet food-grade pellet (FGP) prices are feeling the impact of low-cost virgin and lower-priced imports, with several sellers still not able to sell above cost currently.
The global oversupply challenge
The narrative is further complicated by the global oversupply of virgin plastics, primarily driven by China’s capacity buildouts. This oversupply depresses prices and thins margins for virgin plastic producers, creating a challenging market environment for their recycled counterparts who often find themselves competing with cheap virgin material.
John Richardson, Senior Consultant, Asia at ICIS, offers insights that resonate with the European context: “The challenges facing the rPET market in Europe are not unique. In Asia, we observe similar pressures where the deluge of virgin material availability undermines the economics of recycling, underscoring the need for strategic, government-led interventions.”
Regulatory Uncertainty
The regulatory environment within the EU adds layers of uncertainty to an already volatile situation. The Single Use Plastics Directive (SUPD) sets commendable targets for rPET inclusion in beverage bottles by 2025, yet these targets lack compulsory enforcement, creating a non-binding atmosphere that does little to stimulate consistent demand.
Large beverage brands have already secured their supply of European Food Safety Authority (EFSA) approved FGP to meet their rPET targets (many of which are well above 25% content), but they are concerned about the impact from the small and medium-sized companies.
With less than 9 months to go before the SUPD target kicks in, FGP demand remains below where many rPET market participants expected it to be, showing that even legislative targets alone may not be enough to drive recycled demand.
Additionally, the EU's Packaging and Packaging Waste Regulation (PPWR) remains shrouded in ambiguity, with industry participants craving clarity on its implications for the rPET market. The absence of concrete directives further undermines the confidence and stability that rPET producers require to plan and invest in the future.
Calls for trade barriers
The industry's call for more trade barriers to protect the rPET sector is gaining urgency. In this context, barriers do not signify a retreat from free trade but clear steps to preserve a sector that is crucial for maintaining Europe’s progress toward a circular economy.
Richardson further emphasises the importance of such measures: “To protect the rPET industry, we may need to consider trade remedies that can provide temporary relief against the influx of cheap virgin plastics. This would allow the industry to stabilise and adapt to the evolving market conditions.” These remedies could also be applied to the rPET market, which many European recyclers would welcome.
The road ahead
What, then, is the path forward for Europe’s rPET producers? The key lies in fostering a tripartite alliance between government bodies, industry stakeholders, and consumers to create a conducive ecosystem for the rPET industry to continue to flourish as it looked set to do in the pre-COVID past.
From the governmental standpoint, policy interventions must be both strategic and multifaceted. Financial incentives and tax reliefs could be potent tools to bolster the industry’s competitiveness against virgin plastic alternatives. Investments in chemical recycling technologies and infrastructure will further enhance the sector’s resilience, utilizing hard-to-recycle plastics as feedstocks thus ensuring it does not compete with mechanical recyclers.
Industry stakeholders, for their part, need to advocate for and adhere to sustainable practices that amplify recycled plastics' value proposition. Efforts to innovate in product design and recycling processes, as well as improve collection and sorting processes, will enhance the quality and economic viability of rPET products.
Consumers, driven by a growing awareness of environmental issues, can exert pressure on the market through their purchasing choices. By favouring products packaged in recycled materials, they can spur demand and demonstrate the commercial viability of rPET – as long as they are willing to accept their rPET-produced product might not have the same aesthetic qualities as its virgin-produced counterpart.
At the upcoming juncture, the SUPD’s target for a 25% inclusion rate for rPET in beverage bottles by 2025 could serve as a beacon of hope for the industry, but only time will tell.
It is clear that the next few months and years will be decisive for the rPET industry. The interventions implemented today will shape the sustainability landscape of tomorrow. It is a collective responsibility—one that spans government, industry, and society—to ensure the thriving future of rPET production, not only as a commercial endeavour but as a cornerstone of Europe's commitment to environmental stewardship.