Californian recyclers continue to face margin pressure from PET import, export demand

Recycled PET market participants on the US West Coast have faced challenges with liquidity and economics due to high production costs, weak end-consumer demand, and economic headwinds.

However, these are not the only challenges confronting the market. External factors, such as strong export demand, have sustained high bale prices for post-consumer PET bottle bales, resulting in a price disparity between domestic demand and pricing. A similar situation is occurring in the clear flake market, where competition from affordable imported clear flakes has limited the potential for domestic clear flake prices to rise.

Supply, demand imbalance drives USWC bale prices higher

Strong demand, coupled with limited supply, has sustained high bale prices since the second half of 2024 in Mexico, driven by the expansion of production lines among recycling companies in Mexico and the efforts of brand owners to meet their sustainability goals.

Currently, the arbitrage for post-consumer bottle PET bales between the USWC and Mexico remains open, as Mexican participants continue to actively seek competitively priced feedstock bales, placing pressure on the US recycling infrastructure to increase collection rates to meet both domestic and export needs, as well as potential future legislative and voluntary recycled content goals.

Post-consumer bottle bales in Mexico are of higher quality than US bales, as Mexican bales have a higher PET post-consumer bottle content and command higher prices. As a result, Mexican bales also lead to a higher production yield when processed into PET flakes.

However, lower-quality bales from the USWC continue to compete with bales in Mexico.

Competition limits the potential for domestic clear flake prices to rise

Although prices in the downstream recycled PET clear flake market have remained generally stable, demand on the USWC continues to be weak. Sluggish end-consumer demand and the availability of cost-competitive imported materials have diminished interest in purchasing local products.

"Imported flake is killing domestic production... competition with imports is impossible," a source said.

In the recycled Asian markets, purchasing interest remains constrained due to the absence of sustainability mandates. The region continues to focus on export markets to Europe, the US, and certain Asian areas.

In recent corporate news, Evergreen, a plastics recycling and manufacturing company owned by The Sterling Group, said it will close its wash department while pellet operations will remain open.

Market sources said economic struggles from recyclers in the region could make new investors more cautious.

"However, I believe the investments will just be pushed down the supply chain instead of being vertically integrated," a source said. "Instead of recycling from bottle bales through palletizing, it may just be pelletizing and letting another company focus on the sorting, grinding, washing of post-consumer bottle bales and thermoform clam shells."

Platts, part of S&P Global Commodity Insights, last assessed post-consumer PET premium bales at Mexican Peso 20.50/kg (45.80 cents/lb) ex-works Central Mexico on Feb. 17. Meanwhile, US recycled PET clear flakes were assessed at 54.50 cents/lb FOB Los Angeles on Feb. 14.