Not all recycled-content demand booming in Europe

London-based Independent Commodity Intelligence Services (ICIS) says it expects demand from Europe for recycled polyolefins to remain low for the remainder of this year as bearish macroeconomics continue to drag on the sector.

While some players in the recycled polypropylene (rPP) and recycled high-density polyethylene (rHDPE) sectors have seen a rebound in demand in September, linked primarily to some limited restocking following summer convertor outages, this is from a low base.

Underlying buying interest remains below that seen in September 2022, and pellet producers in the rPP sector continue to operate at 50 percent of nameplate capacity—as they have done through the majority of the year given narrow margins.

Although some costs, such as electricity, have fallen, they remain at elevated levels compared with historic norms, while flake and pellet prices have broadly fallen throughout the year.

Coupled with this, most players’ inventory levels remain high throughout the chain, meaning any restocking effect is more limited than in previous years.

This is particularly true in Germany. Recycled low-density polyethylene (rLDPE) pellets there have so far seen no signs of a pickup in demand in September compared with August.

August typically is a low month for demand because many converters shut operations for several weeks in July and August to do routine maintenance—a process that began earlier and lasted longer this year because of narrow margins.

September typically sees a rebound in consumption as converters restock following their outages.

Europe flexible postcommercial rLDPE bale spot prices meanwhile are facing upward pressure in September, while flexible rLDPE pellet spot prices are at parity with August monthly levels.

Rising flexible bale spot values were attributed to increasing export demand, particularly to Asia. Feedstock bale availability for natural transparent pellets is tight in Northeast and Southeast Asia.

A decline in manufacturing activities across multiple sectors in Southeast and Northeast Asia, resulting from high inflation, has limited input scrap entering the chain and has tightened supply.

Despite limited demand, signs indicate that prices across the majority of rPE and rPP grades could have bottomed out. This is the result of recent rises in virgin PE and PP values, which have removed some of the substitution pressure away from recycled material seen in the past few months.

Although virgin and recycled polyolefin prices have largely decoupled, if recycled polyolefin prices become too uncompetitive with virgin material, this typically still impacts demand.

This is particularly true of nonpackaging applications, such as construction, where players typically buy recycled material based on cost savings rather than necessarily for sustainability reasons.

Coupled with this, the cost-of-living crisis and ensuing bearish macroeconomic environment have made packaging manufacturers more price-sensitive than they have been for several years.

This has meant that low prices for virgin and off-spec material have had a negative impact on recycling demand through much of this year to date.

The author is senior editor of recycling at ICIS.