H2 2021 PETROCHEMICALS: Global R-PET markets grapple with tight supply, strong demand

London — Tight supply, strong prompt demand and an uncertain picture of what the markets will look like post-summer are set to define the global recycled polyethylene terephthalate, or R-PET, markets moving into the second half of 2021.

While the Southeast Asian market looks at ways to boost domestic demand as high freight rates dent export opportunities, the same global freight issues are putting pressure on the US and the European R-PET markets causing, in Europe at least, clear flake price to rise to ten-year highs in the second quarter.

Looking beyond immediate demand, uncertainty over when many parts of Asia and Europe may return to "normal" post-COVID is causing buyers to stop and think about how strong PET demand will be over the summer, which in turn will have an impact on bottle bale supplies through the autumn.

Volatility increases in Europe as buyers scramble to secure material

The European R-PET markets are moving into H2 in a precarious situation. Tight supply throughout the value chain and unexpected strong demand have pushed the R-PET clear flake market in Northwest Europe to ten-year highs.

H2 2021 may see existing market dynamics continue for some time; suppliers unable to supply requested volumes and buyers pushing for ever prompter deliveries as they forego hope of building inventory and work on a week-by-week basis.

It is this combination of fundamentals that is creating a period of volatility throughout the R-PET value chain and making it difficult for participants to fix volumes and prices for even the current month and nearly impossible to fix forward through the summer.

"I can't even get a single truck [of clear flake] as a sample for a new line until August," one buyer told S&P Global Platts.

For many in the market, however, the expectations of continued volatility coupled with demand uncertainty, which is slowly bubbling to the surface, has meant that the prospect of not fixing material in future months is welcome.

"Countries are still under lockdowns in various forms... I am concerned about whether demand will be good this summer, I don't want to be stuck with expensive material so I'm not stockpiling, just covering my monthly needs," one packaging producer said.

Push towards increasing domestic Asian demand as high freight rates dampen export potential

Continuing supply tightness and persistent container shortages should make for an uncertain R-PET landscape in H2 2021, according to sources.

Even though some countries, like China, have seen improved PET bale availability, most Asian markets will likely face persistent supply tightness due to an uncertain pandemic outlook, especially following the wave of pandemic outbreaks seen in India and other countries.

This situation will be particularly acute for clear high-quality bales amid rising demand from brand-owners, coupled with new R-PET food grade pellet projects in Southeast Asia in H2 2021 or early 2022, sources said.

Meanwhile, unclear virgin PET and polyester fundamentals may put price pressure on R-PET for price-sensitive applications like fiber, according to sources.

Separately, container shortages and expensive freight cost will remain challenging for Asian R-PET sellers to export and capture the better prices in the west.

Sources noted that it may take a few months to ease the global container tightness, with one source saying that the situation could potentially last until the end of 2021.

In light of export difficulties, there is a heightened focus on accelerating domestic demand within Southeast Asia, or at least within ASEAN and the Asia Pacific, sources said.

Failing this, in the short term Australia may prove the better destination as prices are heard to be as attractive, yet logistically more convenient, than selling to the west, a Southeast Asia-based source said.

Domestic reclaimers compete with export markets for dwindling PET bottle supply

The outlook in the US remains uncertain as reclaimers struggle to secure supply amid competition with strong export demand and a dearth of post-consumer PET bottles coming through the waste stream. As the US begins to open up, there is some optimism that volumes will increase through the summer as consumers resume mass gatherings and social activity. This may not impact supply until the end of the summer, however, and reclaimers will likely still have to compete with exports that have helped push bottle bale prices to yearly highs in Q2.

Demand from Latin America and Canada has been steadily on the rise since Q3 2020 and peaked in Q1 2021 amid a spike in COVID-19 cases and fresh lockdowns. According to the US Census Bureau, Q1 plastic scrap exports to Mexico were 90% higher year on year, while exports to Canada were up 25% for the same time frame.

While some optimism is shining through as a result of a return to "normality" following the pandemic and new legislation which will look to unlock additional supply streams such as PET thermoforms, this optimism is being tempered by concerns over potential rises in labor and transportation costs as reclaimers compete for truck drivers with an e-commerce industry that has seen strong growth throughout the pandemic.