Argus' analysts review 2023 in the recycled polyolefin market and look ahead at the year to come
Subdued demand, low virgin PE and PP prices and a feeling among recyclers that their industry was not adequately supported by legislation were common themes running throughout the global recycled polyolefins markets in 2023.
Taking an average of key global indicators — European spot prices, US export prices and China import prices — virgin HDPE, LDPE and PP prices were 22pc lower in 2023 compared with 2022, and 37pc down compared with 2021. Barring a reduction in oil and petroleum product prices, virgin PE and PP are not likely to decline further in 2024, because margins are already at minimum levels. Combined with softening inflation in many markets, and a feeling that stocks in the supply chain from the pandemic era have reduced to a more normal level, this is fuelling optimism that the market situation for recycled plastics should not deteriorate further. But few polyolefin recyclers have been willing to confidently predict a significant recovery, at least in the short term.
Europe
European PE and PP recyclers endured a frustrating year in 2023, with weak underlying demand, downstream destocking and persistently low virgin polymer prices limiting their sales prospects.
Although record-high energy prices at the beginning of the year dissipated quickly, high inflation and rising interest rates continued to subdue the economy. Rising prices hit sales of discretionary items such as garden products — and even fast-moving consumer good (FMCG) "essentials" — while high material costs and interest rates impacted new and existing construction projects. The eurozone construction purchasing managers' index fell this year to levels that, aside from spring/summer 2020, have not been seen in a decade.
Adding to this, the low end of the northwest European LDPE spot price range has been at or below €1,000/t ($1,100/t) for 15 weeks so far this year. For HDPE injection and PP homopolymer grades, the figure is 20 weeks. In addition to lowering the ceiling for recyclers selling into "cost-saving" applications, the availability of cheap virgin material contributed to a reported slowdown in the flow of new projects to incorporate recyclates into consumer packaging.
Prospects for 2024 may be more positive, although caution remains a watchword. Inflation has receded and interest rates appear to have stabilised, albeit at a higher level. Buying patterns in the second half of 2023 suggest that Covid-era stocks downstream have now been depleted. But, while most recyclers do not expect demand to get worse — and some signal strong order entry for January — few are willing to confidently predict a return to sustained growth, and many expect an overhang of stock to make price increases difficult to push through in the first half of the year. The industry will hope for a successful outcome to EU Packaging and Packaging Waste Regulation (PPWR) negotiations in the first quarter, to boost confidence in future demand and give recyclers a yardstick to work towards.
North America
The story of 2023 for recycled polyolefins was one of weak demand and even weaker virgin pricing, causing prices to decline sharply and flatten for many months.
January will be an important month for the US polyolefin recycling market as it will set expectations for recyclers after what has been a difficult year.
The market has been on a bumpy road to recovery since the middle of 2023, and prices for most rHDPE and rPP grades will end the year with higher prices than in late summer on the back of improving demand and some increases in feedstock costs. Further increases already appear likely in January as bale prices have risen this month in response to shrinking collection volumes.
But whether demand will truly "return" in the way that producers are hoping for following winter months is still an open question. US construction data shows a mixed picture, with spending up year on year and a gradual uptick in single-family housing permits, plus a new EPA rule proposal to replace lead pipes that could buoy mixed color rPE demand next year. But there is a year-on-year downturn in multi-family housing construction. And oversupply of virgin polymers, which weighed on prices for black and grey injection-moulding grade rPP and rHDPE in the second half of 2023 as price-sensitive buyers shied away from paying more for recycled material, remains.
On the packaging side of the market, underlying FMCG volumes will take time to recover, even if firms are signalling a positive outlook. But demand has stabilised since a dramatic fall in the price of packaging-quality recyclates in the middle of 2023, which recyclers will hope encourages firms to continue progress towards their sustainbility targets. Although recycled markets often move slowly, occasionally they can give participants little notice before a dramatic change. This year, the price of HDPE natural bales fell from 80¢/lb in mid-June to today's price of 27¢/lb, after packaging companies baulked at paying what felt like painfully high prices for FDA-approved rHDPE resin in a fairly weak polymers market, causing demand to fall off a cliff.
Southeast Asia
Low virgin PE prices globally likely had a particular impact in southeast Asia, where demand for recyclates is especially cost-driven. While mandatory recycled content usage and EPR schemes are being mulled by some southeast Asian governments, progress is in the early stages, increasing the exposure of rPE prices to fluctuations in virgin PE. Recyclers also pointed to weak demand for exports to Europe and the US during the year.
But, while many recyclers in the region were expecting to reduce or stop operations towards the end of the year in the hope of a turnaround in early 2024, there were signs of change towards the end of the year with some noting increased demand for exports in recent weeks. This is yet to effect a change in recyclate prices but has made southeast Asian recyclers more optimistic about 2024 than they were several months ago. It is not immediately clear what has driven this development, and whether it will be sustained, although it may be a sign of buyers in western markets becoming more "comfortable" committing to imported material, after testing volumes in recent months and years.
Southeast Asian recyclers remain largely unperturbed by still-to-be formally confirmed amendments to EU Waste Shipment Regulations (WSR), which would effectively ban the export of plastic waste from the EU to non-OECD countries within 2.5 years. Southeast Asia is the largest non-OECD importer of EU plastic waste, especially PE film waste. Market participants said that the change is unlikely to affect the larger recyclers in the region who have invested across the supply chain to ensure a steady stream of feedstock from domestically-sourced waste. But they said that a ban would create barriers to entry for those wishing to enter the recycling industry who do not have established collection frameworks.
Northeast Asia
China continues to promote and improve guides and standards in the field of recycled plastics to prepare for future application and promotion.
The first local chain of custody standard for recycled plastics was officially released this July. This means that China's recycled plastic regulation system has been further improved, and recycled plastics will be traceable during the period of collection, recycling, producing and sales.
China is the world's largest consumer and producer of polyolefins, and claims the largest production capacity of recycled plastics, although many plants are small in scale and focusing on lower-quality products. Compared with rPET, there is less research on its safety, environmental protection and pollution reduction technology related to recycled polyolefins in China, and less usage of recycled polyolefins in high-quality applications. Like rPET, usage in food-contact applications in non-existent. Therefore, such normative guides and standards are important for the development of recycled plastics.
China's huge market is also attracting plastics giants to participate, which also improving the technology in plastic recycling. In April 2023, LyondellBasel signed a framework agreement with China's Guangdong Genox Environmental to establish a joint venture and build a mechanical recycling plant for plastic recycling in Zhaoqing, Guangdong province. And major European waste management firms such as Veolia and Interzero have invested in recycling capacity in the country.
