Buyers in the European rPET industry will remain cautious in 2023, after demand weakened in the second half of 2022 on recessionary fears following a boom in the first half of the year.
The rPET market benefited in the first half of 2022 from sustainability concerns being high on the agenda, and prices reached historical highs in the summer. But economic concerns, energy prices and the cost-of-living crisis dramatically reduced demand for recycled material from June.
Falling prices persuaded buyers to hold back from purchasing more material than they needed. Stocks in Europe have been drawn down in the second half of 2022 and should need to be rebuilt, but the uncertain economic environment has delayed 2023 contract discussions and led some buyers to shun long term contracts for the flexibility of the spot market.
Prices could find some support from this reliance on spot volumes, which could tighten the rPET supply and demand balance in the first half of 2023 if buyers seek to rebuild their stocks ahead of the summer. But reduced long-term deals also lower recyclers' certainty about demand, at a time when recycling margins are already slim and energy costs are creating concern.
Deferring commitments
An economic recovery in 2023 will be dependent upon factors including Russia's war in Ukraine, China's reopening after Covid-19-related restrictions and European policymakers' approach to controlling inflation without stifling growth and employment.
A lacklustre economic environment could affect demand for food-grade pellets to some extent, and there are signs that some firms are willing to defer progress towards their voluntary recycled content commitments. Year-on-year demand growth in 2023 could be slower than previously anticipated as a result, although the mandatory deadline for PET bottles to contain 25pc recycled content by 2025 should offer some support.
Outside of the food-grade pellet market, recyclers continue to face the challenge of lower virgin PET (vPET) prices. Buyers of rPET flakes for thermoforms, strapping and other non-bottle applications baulk at prices that are not discounted to vPET, and recyclers have struggled to compete with increasing low-cost Asia-Pacific vPET imports in the second half of 2022. This situation is unlikely to change until the third quarter of 2023 at the earliest, as declining containership rates are making Asian imports ever more attractive.
European vPET producers are organising a request for an EU anti-dumping investigation into these imports, but there is no guarantee this would be accepted and any measures would take a long time to be implemented. Until vPET prices pick up, both rPET flake demand and prices are likely to remain under pressure.
But recyclers are confident in the future of the recycling industry. Large brands continue to pursue sustainability targets — even if some are slightly delayed — and legislation mandating the inclusion of rPET in bottles is in the process of being extended to all packaging through the European Commission's Packaging and Packaging Waste Regulation proposal. This would increase demand and could partially break rPET flake's dependence upon virgin prices.
Sustainability in general remains high on the European agenda and — while 2023 is likely to be a tough year — the recycling market is secure in the belief that investment and development will continue.
