Seller’s market for plastic scrap in Europe, says analyst

European plastic scrap bale supplies are tight across all major recycled polymer chains as growing demand from the packaging sector continues to expose shortfalls in collection and sorting capacities.

There are now major supply shortages across the recycled polyethylene terephthalate (PET and rPET), recycled high density polyethylene (HDPE), recycled polypropylene (PP) and recycled polyvinyl chloride (PVC) chains.

Multiple players across these markets expect current shortages to last throughout 2021, and potentially across 2022.

Scrap bales - either from postconsumer or post-industrial origin - are the feedstock for the recycling industry, and low availability is adding pressure throughout the recycling supply chain.

For recycled-content PP, for example, flake and pellet players have had to limit operating rates by as much as 40 percent in recent months due to a lack of bale availability.

There are multiple factors in the current shortages, which differ slightly from market to market, including the onboarding of projects delayed by the coronavirus pandemic, logistic and workforce disruption due to COVID-19, changes to scrap input mixes and substitution of virgin material owing to shortages in the first half of 2021.

The common trend across all markets, though, is the lack of sufficient collection and sorting capacity.

Expansions in collection and sorting capacity have not kept pace with demand created by growing sustainability pressure on fast-moving consumer goods (FMCG) firms, ambitious brand targets, and the ongoing consumer and regulatory pressure against single-use plastic.

Across most of Europe, recycled materials collection is the responsibility of local authorities, and investment in collection systems has been limited since the global financial crash in 2008.

As an example of how sharp the gap can be, in Europe, at present, there is around 600,000 to 700,000 metric tons per year of postconsumer rigid PP input.

This would be sufficient to replace around just 5.5 percent of Europe virgin plastic packaging consumption, based on Independent Commodity Intelligence Services (ICIS) Supply & Demand database figures, assuming that every metric ton was used by the packaging sector with no wastage.

For recycled-content HDPE, there is around 700,000 to 800,000 metric tons per year of postconsumer rigid input, and a similar figure for recycled-content LDPE.

This would be enough to replace 11 percent of PP and 15 percent of LDPE virgin plastic packaging, respectively, under those same conditions.

However, wastage rates (the amount of material lost during production due to contamination or mechanical losses) are typically from 25 to 50 percent. Packaging does not have a 100 percent share of the market, and many applications can only use natural material. Natural material comprises around 10 percent of bale input.

This suggests that current collection capacity could replace less than 1 percent of current virgin polyolefins plastic packaging consumption.

Brands have increasingly begun to announce ambitious recycling content targets, which are typically for 25 to 50 percent recycled content, but can be as high as 100 percent recycled content.

As a result of ongoing bale shortages, downstream players are increasingly looking to create joint ventures with waste management firms and to backwards integrate over expectations that bale shortages could become endemic—largely the result of rising demand from the packaging sector.

Given the current lack of bale capacity some polyolefins players are expecting investment in selection systems for mixed plastic bales, and an increase in usage of mixed plastic feedstocks.

These are the same feedstocks that many chemical recyclers in Europe typically seek to use, potentially placing the two industries in direct opposition.

At present, many calculations on the economic feasibility of chemical recycling plants are predicated on the assumption that waste management companies will pay to have plastic scrap bales taken away, or that partially sorted bales will remain at low cost.

This is currently common because the alternative would be to pay gate fees for incineration or landfill, and as long as the money paid to chemical recyclers is below gate fee costs, waste managers are prepared to do it.

As this material increasingly becomes desirable or usable for the mechanical recycling chain, though, competition is likely to intensify and making material sold at negative values increasingly less likely.

Traditionally, September would be the time across the major recycled polymer markets when bale availability is at its highest.

For rPET, this is because its major input source is used plastic drinks bottles, more of which are consumed when temperatures are higher. It typically takes several weeks for the used bottles to make their way back into the chain, and so September is when extra volumes from the summer become apparent.

For recycled polyolefins, converters and recyclers typically shut down during July and August for routine maintenance, and lower consumption typically lengthens the bale market.

In 2021, however, strong demand from the packaging sector has meant that the summer months have done little to rebalance the market. That bale supply is so tight in September is causing concern across recycled polymer chains, but particularly for rPET.

Traditionally, rPET converters and recyclers build stock in the summer months when temperatures are high and more material is typically entering the discards stream to offset lower volumes entering the chain in colder months.

Underlying demand for the rPET flake sector has strengthened in 2021 due to additional capacity coming onstream and an increasing number of players captively producing from flake through to pre-form. There also is increased interest in flake material from the bottle-to-bottle sector.

Increased demand for rPET is being stimulated by intensifying sustainability commitments from the packaging sector, and ongoing consumer and regulatory pressure against single use plastics.

Consumption of rPET flake has increased by as much as 60 percent compared with 2019 levels (2020 demand was negatively impacted by the pandemic), according to market estimates.

This has placed upward pressure on bale prices throughout 2021. Bale prices are the largest variable cost for the recycling industry, and this has increased production costs significantly during 2021. Rising electricity costs also have had an impact because of the higher cost of washing material.

“There is a risk that the escalation in recycled polymer prices and inability to increase supply due to structural constraints will begin to challenge some users in their ambitions to attain high recycled content levels and for some to use recycled content at even a minimum level,” says Helen McGeough, senior analyst, plastics recycling, at ICIS.

“The drive of the end markets has not been mirrored by developments and investment upstream in collection and sorting,” she continues. “Without focus on these fundamentals, the industry can expect high costs and supply limitations through 2022.”

Demand, meanwhile, shows no sign of slowing. With plastic packaging taxes due to come into effect in Italy, Spain and the United Kingdom in 2022, and brands approaching their 2025 content commitments, and other sectors such as automotive and fabric fiber becoming increasingly interested in sustainability, underlying consumption is expected to continue to grow.

ICIS has been highlighting collection and sorting capacity shortages for several years; never have they been more apparent than in 2021.

The author is Senior Recycling Editor at London-based Independent Commodity Intelligence Services (ICIS).