European plastics recycling markets react to coronavirus
In Europe, PET water bottle scrap flows are lighter, possibly due to household storage of drinking water.
Photo by Brian Taylor.

European plastics recycling markets react to coronavirus

ICIS editors point to concerns with collection, logistics and potential downstream demand losses.

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March 24, 2020

Concerns over the long-term impact of the coronavirus outbreak on key European plastics recycling markets sharply escalated this week following the adoption of further containment measures across the continent.

Sources are particularly worried about limited volumes entering collection systems, logistic disruptions, potential downstream demand losses in nonpackaging sectors, buyers abandoning sustainability measures and a reduction in necessary long-term investment.

Even at the end of last week, concerns in the plastics recycling industry had only been limited to the impact on virgin prices—with which recycled material competes—and individual customer relationships in countries such as Italy.

The coronavirus has had a major impact on petrochemicals, hindering global supply chains, changing consumer demand patterns and prompting wide swings in the markets. At the same time, crude has plunged in the wake of the ongoing price war between Saudi Arabia and Russia, which is also being felt in virgin plastics markets across Europe.

In the meantime, the plastics recycling markets have largely been trading normally, albeit with some additional buyer caution. This, however, is beginning to shift.

Changing consumer behavior

Sources in the recycled polyethylene terephthalate (rPET) market—the most widely recycled plastic across Europe—are already seeing a change in consumer behavior, particularly around buying habits, and more importantly, recycling habits.

“People are buying [bottled] water and they don't bring it back, they store it,” a German recycler says.

Demand for virgin PET already has increased significantly in March as Europeans began to panic buy food and other necessities.

“On the one hand, it's a regular seasonal effect in February and March—it’s winter so people drink less [bottled drinks]. But on the other, purchasing has increased big time, so [consumers] store [bottles] at home, [and] some have switched to glass,” the recycler adds.

Sources in Germany, which has one of the most established deposit return schemes (DRS) in Europe, where consumers return their used PET bottles via reverse vending machines in locations like supermarkets, are waiting to assess the impact of social distancing and self-isolation on the recycling market.

Many will be looking at how used PET bottles are returned to the recycling stream during the outbreak as it comes at a time when postconsumer bottle availability is already tight because of the previously mentioned drop in bottled-drinks consumption.

This also is likely to have an effect on seasonal trends associated with the consumption of bottled drinks. If social distancing is still in effect during the summer, people may not go out as much, resulting in less rPET availability. Some sources say the coronavirus may cause more people to turn to tap water or use glass bottles over plastic.

A similar trend of reduced collection rates is expected in other key recycled polymer sectors, such as recycled polyethylene (rPE) and recycled polypropylene (rPP).

“We plan that we will have less material getting into our plants in the next weeks,” a major French waste collector and reprocessor says.

Reduced collection rates typically take several weeks to be felt in the market because of the time it takes postconsumer or postindustrial material to work through the chain. This means that any shortages most likely will be felt during what would typically be the beginning of the peak season for rPET and recycled polyolefins (rPO). Nevertheless, given the demand uncertainty, it is unlikely that the 2020 peak season will be typical.

Demand impacts

The impact on demand for rPO is likely to be divided by end-use market. Key end-use markets include automotive, construction, bin bags, outdoor furniture and packaging. Automotive demand already has fallen sharply because of the outbreak, and it is likely to decline further after temporary closures at automotive manufacturers across Europe.

The construction industry is more protected from any direct production impact caused by the coronavirus, but it is likely to be heavily affected by any economic downturn. Outdoor furniture demand, meanwhile, is also likely to suffer because of isolation measures.

In contrast, packaging demand is expected to soar. Buyers are expected to favor plastic-wrapped food driven by hygiene concerns and because of the widespread use of PO in packaging cleaning and hygiene products.

Nevertheless, the extent to which this will benefit the recycling industry remains unclear. Several sources suggest that the pandemic will take the focus off sustainability targets in the short term. They also expect brand owners to switch back to virgin, which may be more readily available.

Because the price for products such as colorless rPET flakes and food-grade pellets, recycled high-density polyethylene (rHDPE) natural and food-grade pellets and rPP natural pellets are all now higher than virgin material, it only adds to the possibility of further substitution back to virgin.

“In the current situation, if they can't find recycled low-density polyethylene (rLDPE), they'll use LDPE simply to [be able to] supply [their goods],” a major packaging manufacturer says.

Coupled with this, concerns about staff shortages mount as the pandemic gathers pace as does the ability of small recyclers to manage cash flow if they are unable to operate for a sustained time. Cash reserves at recyclers are typically kept low compared with the petrochemicals industry.

Logistical concerns

Of wider concern is the impact on logistics. Now that several countries across Europe have closed their borders and restricted the movement of goods and people, getting material to and from recycling units already is proving a challenge for some.

“We see [problems] on the logistics side, so getting bottles delivered and also delivery of our finished goods. There are some borders closed but it's mainly focused on people trends, not transport of goods ... Checks on temperatures [of drivers] at boarders … delay transport activities,” an rPET producer says.

Across the recycling industry, pan-European trade flows are common with postconsumer and postindustrial scrap commonly sourced from overseas, depending on availability and quality, and finished recycled flakes and pellets also commonly are exported cross-border.

“Logistics is very painful at the moment in Europe, for all products and all materials, don't know what it'll mean in the end as it'll impact the usage of the products,” a flake producer in central Europe says.

Logistic problems already are causing some companies to build up inventories to manage potential disruption.

“We buy big quantities from France, Netherlands and Italy, and when the borders close completely, there's a big problem as where do we get our material? Also 50 percent [of our end product] goes outside of Germany to Europe, and our customers ask us if we're able to deliver the material they need, if we have to reduce production.

“When we ask our plants for transport, they say no problem. At the moment, it seems to be … stable, but the question is what will happen tomorrow when the government makes the decision to close the border,” a major European recycler says.

Ongoing uncertainty over the wide array of response by European governments to the coronavirus has further obscured the demand picture; while some are stockpiling, others are taking the opposite approach and avoiding new orders.

“We have orders, but not new orders for the next weeks. There's a big confusion over the next weeks,” the major French waste collector and reprocessor says.

Longer term impacts

The longer term impact on investment decisions also remains uncertain. Investment across mechanical and chemical recycling is vital if the industry is to meet ambitious legislative and brand targets for packaging recycling. Availability of food-grade material currently is short across all recycled polymers on the collection and reprocessing sides.

Take rPET as an example. Reprocessing capacity for food-grade approved pellets stands at 300,000 metric tons per year, whereas for recycled rHDPE, it is around 100,000 metric tons per year.

For other rPO grades, food-grade material is only available in very small volumes because of European Food Safety Authority (EFSA) requirements on traceability and sorting.

New technology, new collection methods, the growth of chemical recycling and increased reprocessing capacity are all needed to meet 2025 targets.

However, a weaker economic outlook is having a limiting effect on investment, particularly in areas such as recycling where investment from small startups is common because of lower barriers to entry than for petrochemicals, and where collection systems remain largely in the control of local authorities. Both are vulnerable in the current situation.

The economic fallout from the global recession of 2008, for example, resulted in more than a decade of underinvestment in collection systems by local authorities because of widespread austerity measures across Europe.

With the scale of social distancing measures necessary for the containment of the pandemic, a global recession is looking increasingly likely.

For the time being, the majority of the European recycling industry continues to operate on a business as usual basis, but the consequences may be felt for many years to come.

Mark Victory and Matt Tudball are senior editors, recycling at ICIS. ICIS is a source for independent commodity intelligence services in the chemicals, energy and fertilizer markets. The company is headquartered in London and online at www.icis.com.