Five things to watch out for in Europe in 2024

  • Market: Petrochemicals
  • 12/01/24

Demand, SUP deadlines, imports, PPWR and chemical recycling are the key areas that will impact the recycled polymers sector this year, write Will Collins and Chloe Kinner

Demand recovery?

European recyclate demand was generally weak in 2023, and while most recyclers surveyed by Argus feel the economic cycle has reached a floor and some are seeing fairly solid order entry in January, few have been willing to confidently predict a sustained uptick in demand in the early part of the year.

Many of the headwinds that the industry encountered in 2023 remain pertinent. Consumer price inflation, which weighed on sales volumes of household items and discretionary goods over the past 12-18 months, has reached its peak. But absolute prices remain high and household budgets and employment are being squeezed by high interest rates.

Outside the packaging sector, production in the manufacturing sector contracted sharply month on month through the year and the eurozone construction purchasing managers' index fell this year to levels that, aside from spring/summer 2020, have not been seen in a decade. Recyclers may take heart from apparent restocking in September — after the summer — and now in January after year-end, which suggests inventories in many supply chains are now at a low level. Atlantic basin central banks' acknowledgement of the need for gradual interest rate cuts could also be encouraging, although Argus chief economist David Fyfe warns that betting on accelerating global GDP growth for 2024 may be premature.

Some have speculated that 2024 could be another year of consolidation in the industry, after a number of buyouts of recycling companies — including several by virgin polymer producers — during 2023.

2025 deadlines approaching

The EU Single Use Plastics (SUP) directive sets out an obligation for PET bottles to include 25pc recycled content, and a collection target of 77pc for single-use plastic bottles, by 2025. European recyclers have invested in rPET food grade pellet production and capacities have increased over the past 12 months, but there are still concerns about tight availability. A key bottleneck for the European industry continues to be collection of high-quality recycled material, which has led to calls from the packaging and beverage industries — generally opposed by the recycling industry — for a right of first refusal on plastic waste and the implementation of more national deposit return schemes (DRS).

Uncertainty still remains on how the SUP directive with be implemented with market participants calling for further clarity on calculating, verifying and reporting on targets, such as confirmation that imported material will not be counted towards recycled content targets.

Outside the SUP, many large brands have significant work to do toward their 2025 targets, which include voluntary pledges to increase recycled content in their packaging. The latest Ellen MacArthur Foundation report on these pledges shows most businesses are on track to fall short of their 2025 targets, despite notable progress in the past five years.

But brands' tighter scrutiny on projects to increase recycled content in packaging in 2023, particularly since recyclates of sufficient quality remain — in many cases — significantly more expensive than the virgin polymer equivalent, appears not to have lifted as yet. And, whereas PET recyclers can bank on higher demand in the run-up to the 2025 SUP directive deadline, polyolefin recyclers selling into packaging will hope that firms remain committed to progressing towards their voluntary targets as the year continues.

Imports to be a battleground

Anticipated tightness in the supply/demand balance for packaging-quality recyclates leading up to 2025 has buoyed interest among rPET buyers in imports from lower-cost regions.

Recyclers have noted for some time increased competition from imports of recycled material from countries outside the EU, such as from southeast Asia and north Africa. There is little reason to expect a change in 2024, assuming that disruptions to shipping in the Red Sea and Suez Canal do not sustain freight rates at levels that make imports unattractive. Demand from outside the beverage bottle industry and from brand commitments that go beyond the SUP will continue to provide an opportunity for importers.

Increased competition from imports has led to discussion of protectionist measures to guard European industry. Anti-dumping duties that were provisionally adopted against a range of Chinese virgin PET resin producers in December may inadvertently impact imports of rPET — which currently have no separate HS code to distinguish them from virgin PET. Market participants note that the volume of recycled material from China is currently limited, but some say these duties could be seen as a warning sign to other countries that aggressively import into Europe.

Rising imports have also attracted the attention of European industry association Plastic Recyclers Europe (PRE), which has called for tighter traceability controls on products from outside the EU to create a "level playing field" for European recyclers looking to compete with imports.

"EU recyclers are subject to robust legislation and safety requirements, which on the contrary cannot always be verified for the imported material," it said in November, calling for "independent third-party certifications" for extra-EU recyclers to verify the origin of waste and the recycling methods used to reprocess it.

More progress on PPWR

The European Parliament and the EU member states have now each confirmed their support for the mandatory recycled content requirements across almost all plastic packaging, which were originally laid down in the European Commission's Packaging and Packaging Waste Regulation (PPWR) proposal in late 2022.

If adopted, this would be celebrated by the European recycling industry, particularly polyolefin recyclers, as a means of supporting demand for recyclates that would insulate the recycling industry to some extent from fluctuations in global oil, petrochemical and virgin polymer prices.

But Martin Engelmann, director-general of German plastic packaging association IK, told Argus that different proposals regarding the reuse quotas and bans in PPWR are a potential sticking point. The parliament has suggested many exemptions based upon life-cycle assessment (LCA), which is completely opposite to what many member states want, he said. These differences could make it harder for PPWR to be adopted ahead of this year's change of parliament, he warned, and increase the likelihood of a patchwork of national legislations developing that could negatively impact the plastic packaging market.

Another crunch year for chemical recycling

In "Five things to watch out for in 2023" we identified last year as a crunch year for demonstrating the scalability of chemical recycling and clarifying its status in European legislation. But many questions remain to be answered.

Many of the small-to-medium commercial-scale plants that we expected to come on stream in 2023 are now expected to ramp up in the first half of 2024. And the EU's decision on which mass-balance accounting system will be allowed for attributing recycled content based from chemical recycling has been delayed, with informed parties now suggesting a decision could come in the first quarter.

The debate in the EU is centring around whether to accept a "polymer-only" or "fuel-exempt" calculation methodology (see table) for applying mass balance to chemical recycling. The latter option is supported by the plastic and chemical recycling industries, which has warned that adopting a polymer-only calculation method would stymie investment. But some, including Engelmann have suggested that lawmakers may be leaning towards the polymer-only model as a "compromise" between fuel-exempt and a more restrictive system of proportional allocation across all products. IK and other industry associations are concerned that recycled content quotas, particularly for non-PET contact-sensitive packaging, may become impossible to fulfil unless investment in new chemical recycling capacity continues.

This article was created by recycled polymer experts using data and insight from Argus Recycled Polymers. Request a free trial or more information here

Mass balance calculation methods
Explanation
Free allocationRecycled content equal to feedstock in minus process losses can be allocated freely to highest value products
Fuel exemptRecycled content equal to feedstock in minus process losses and fuel production can be allocated freely to highest value products
Polymer onlyRecycled content equal to feedstock in minus process losses, fuel production and production of products that will not be converted into polymers can be allocated freely to highest value products
ProportionalAll cracker products receive proportional share of recycled content

EU-27 food, beverage, tobacco sales

Recycled content pledge progress

NWE recyclate premiums

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