James: Hello, and welcome to this Argus Chemicals Conversation podcast, the first episode in our K Show Plastics Preview Series. Today we will be discussing the latest developments in recycle polymers. I am your host, James Elliot, and I'm joined by Will Collins, Global Editor Recycled Polymers, and Chloe Kinner, Editor Recycled Polymers.
Will and Chloe are going to be representing Argus Recycled Polymers at the K Fair in Düsseldorf in October. They have joined to discuss some of the most significant evolutions in the market over the past few months, and talk about what some of the main recycling-related discussion points are likely to be at the show.
Hello, Will and Chloe. What developments have you seen in the market during the summer, and how is it positioned heading into the autumn?
Will: For polyolefin recyclers it's no secret, it's been a very tough first half of the year. But they have seen some margin improvement over the summer. Northwest European bale prices have declined pretty much across the board, as is typical for the time of year because waste keeps being produced. But there are fewer recyclers available to process it, as many are taking summer holidays or maintenance.
And to a large extent, recyclers seem to have managed to avoid passing on the whole of this drop in their feed feedstock costs to their sales customers, at least so far. Going through the different markets, availability of flexible PE bales has improved after a period in the spring where a number of buyers found it difficult to get the material that they needed. European [inaudible 00:01:48] bale prices are also still higher than those in Southeast Asia, so sellers don't have the export option that they've had in previous years.
So the European market has fallen by €40 or €50 a tonne or about 10% in July, August. Whereas in the rigid market, recycled HDPE remains split between the steady and solid demand for the high-quality packaging applications. But still real struggles for recyclers to sell into lower-end consumer markets, particularly the pipe industry. And many PP recyclers have found that demand for RPP pellets has actually outstretched their expectations over the summer period.
Given the production of plant pots and trays usually drops in the summer, and virgin PP is as cheap as it has been relative to recycle PP for several years, everything seems set up at the start of the summer for the kind of recycled PP price declines that we saw in 2023 and 2024 when in both years, by the end of the summer, some sorting companies were having to pay recyclers to pick up PP bales from their yards in Northwest Europe at the low end of the market. But prices and demand have actually been remarkably resilient this summer with only a €30 a tonne drop in August. PP bale and RPP rigid regrind assessments since the start of July. And largely stable RPP pellet prices so far as I said.
In terms of how this leaves the market's set up for the autumn, it'll mean that recyclers' profitability is under less pressure than it was heading into the summer. And they'll take some encouragement from the fact that recyclate markets seem to have outperformed virgin polymer markets in terms of demand in July and August, which suggests that the business environment might be sustainable even if, as currently expected, virgin prices remain on a low level.
And there are several industries including packaging and agri film where they'll expect to see stronger demand after the summer. But with all that said, it's still a challenging time for the recycling industry as evidenced by the large number of capacity closures that have been announced in the past 12 months.
James: I'm glad to hear there is some relief for the recyclers, Will. And in the APET market, Chloe, can you comment there?
Chloe: So in the European APET market, bale prices have also declined over the summer. So with consumption of packaging over the warmer months, and waste and collection volumes increasing at the same time. And as Will mentioned, recyclers have also taken holidays and routine maintenance turnarounds and market activities also slowed to a seasonal lull. North and west and Europe eastern bale prizes have fallen around €50 to €60 from July to August. Whilest bail prices in the central market have actually fallen the most, up to about €130 over this time.
Prices in the central region have sustained a premium over the rest of Europe for most of this year, but have now fallen back to be more aligned with the rest of the region. Waste collectors yards are getting full, and some sellers are accepting lower offers just to move material. The expectation is that prices will continue to be pressured down in the first weeks of September and then stabilize out as we go forward.
Some recyclers are a little bit more optimistic that increased consumption over the summer will have drawn down converters of brands' inventories. And it might incentivize some restocking activity when the market returns. But demand is slow this year and others are less optimistic saying that prices are still under pressure, and buyers will likely hold off from purchasing volumes in the hopes that prices will continue to fall.
Also, import volumes previously purchased continue to arrive, and they will likely fulfill some of this restocking requirement. Over this year, demand for packaging and APET has been relatively stable, but at a really quite low level. And there's little to suggest that this is likely to improve through to the end of the year. But we are awaiting the return back to normal after the summer to see the direction of the market. And contractual discussions for next year will gradually begin, and we'll definitely be in full swing by the time of K Fair.
While some recyclers are hopeful, import offers are still really competitive and virgin prices do still continue to trickle down, which is widening the premium for recycled flakes and food grade pellets over the virgin market. And the price gap with virgin is definitely impacting demand for APET this year.
James: Thanks, Chloe. I'd like to drill down and examine one of the themes that you both commented on. If the lower discount for recycled polyolefin material compared with virgin material is not affecting demand as much as expected, is this evidence of more companies choosing recyclers for sustainability reasons rather than simply to just save money?
Will: I think there definitely does seem to be an element of that. And even in markets like the flower pot industry, which have traditionally used recycled material because it's cheaper than virgin plastic, you do still have large companies that have made sustainability commitments and are locked into some extent to buying the recycled material.
If you look at the current price spread between the standard RPP Black and virgin PP homo polymer spot prices that Argus assesses, there's actually only a €30 a tonne gap between the high end of recycled and low end of virgin. But converters have continued to buy recycled. And when we launched Argus Recycled Polymers, which is only three years ago, the rule of thumb then was that converters wanted a €200 differential to cover the additional costs and quality control concerns associated with using recycled material.
I also think that the confirmation of PPWR has been a factor here. It only impacts the packaging industry with recycled content targets and even there converters don't actually have to use recycled content until 2030. But the confirmation, the regulation has made, made buyers in all industries more aware that regulation is coming. And given the number of capacity closures this year, the recycling industry needs support if they want to have enough material available to them to use as and when these regulations come.
And that's not to say there's not still pressure on recyclers to compete with virgin polymer prices and demand losses in some cases from companies switching back to virgin. And a real litmus test, I think will be the negotiations for contractual offtake for recyclers in 2026, and how willing the converters are to maintain or increase volumes even given the less favorable cost comparison with virgin. But I think these are likely to begin in earnest more in the coming weeks, and probably be in full swing by the time we arrive at K Fair.
James: And in the RPET market, Chloe, there is more impact on demand from lower virgin PET prices?
Chloe: Yeah, we have seen that this year. The premiums for recycled flake and food grade pellets over virgin have grown significantly this year. So they've increased on average from around €75 per tonne for flake and €375 per tonne for pellet in 2024 to over €300 for flake and over €600 for food grade pellets so far this year. Even with these high premiums, recycled margins have continued to be squeezed and have been slim throughout the year. It's been a challenging time, and there's little to no space to move recycle prices down to compete with these virgin levels.
Users of recycled PT in other applications outside of the bottle beverage market have switched away from recycled and into virgin for cost-saving purposes. And converters and brands have reportedly limited their recycled use wherever possible. In some cases, that's delaying projects to increase recycled content or focusing on their virgin usage for new product launches.
The single use plastics directive or SUPD, minimum recycled content target is set at 25% in beverage bottles from 2025. And that is securing a base level of demand for the market. But average recycled content percentages across Europe were already reaching close to those levels before this year started. So this surge in demand that recyclers had hoped for for 2025 hasn't really appeared, and it has been a really difficult year.
Brands have continued to commit to their voluntary targets as well, which often go above and beyond the legislation. But progress has slowed towards these and the focus for many of the target years has switched to 2030. Low-cost virgin and recycled imports have also weighed really heavily on the market, as I mentioned earlier. And the European Commission has started an anti-dumping investigation into imports of PT from Vietnam, which include both virgin and recycled under the same HS code.
Preliminary findings of this investigation and any preliminary duties are due to be announced at the end of December. So European recyclers and virgin producers are hoping that this will support both the Virgin and reduce some of the import competition for recycled material next year.
James: Thanks, Chloe. We've discussed the challenging recent times for the recycling industry and you've both referenced plant closures through your answers. Can you give a bit more insight into what's happened and how this has affected the market?
Will: Sure, I think it does bring home that, although certainly on the polyolefin side, just see some margin improvement over the summer. It has been a very challenging period for the industry, as you said. I mean, for anyone with even a passing interest in the European polyolefin recycling industry, it would have been impossible to miss the regular news coming out of companies entering administration or shutting down capacity, which at times this year have seemed almost weekly. And Plastic Recyclers Europe actually released a statement yesterday, as we speak, saying that by the end of the year, the European recycling capacity or plastic recycling capacity is expected to have declined by a million tons a year compared to 2023.
What's happened this year, or in the last 12 months, includes a number of significant PE film recyclers in Western Europe shutting down capacity, and 2 of the larger recycling facilities handling rigid polyolefins in Europe as well. I'm referring there to Viridal [SP] polymers in the UK and Veolia Multiport in Germany. I mean, while each closure has its own specific circumstances, a thread running through the announcements has been an unsustainable mix of high costs and slow demand, which has prevented those high costs from being passed on in downstream sales prices and therefore squeezing margins.
So in terms of how this has affected the industry, it's difficult to say with any certainty. But to my mind, the news of the closures has to some extent awakened converters that they...well, it's awakened them to the fact that they need to support their suppliers if they want them to survive and develop in time to meet the upcoming legislative requirements like PPWR. But there are others as well targeting other industries like automotive. And it's quite possible that this has been a factor in prices for RPP, for example, being more resilient than what may have been expected during the summer.
Going forward, rationalization of capacity in the industry should be a benefit for those that remain as it'll mean less competition for feedstock and also less competition for customers. The hope for the industry will be that combined with growth in sorting capacity for lightweight packaging waste, and increased focus on rest plates from customers, even in cost-saving markets, this will enable the business environment to improve to the extent that further closures can be avoided.
James: Thanks, Will. Thanks, Chloe. Insightful as always. If you would like to meet with the Argus Recycled Polymers team at K Show, please reach out to us after you've listened to this podcast. Join us for episode two of the K Show Plastics Preview by Argus Chemicals Conversation during which we'll be discussing Southeast Asia Polyolefins and our pricing methodology. Thanks for listening. Goodbye.
