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Economics the key challenge in global recycled plastics markets

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Economics the key challenge in global recycled plastics markets

Unfavorable economics in the recycled plastics markets are expected to continue in the first half of 2020 but media and consumer pressure should boost demand globally.

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Commodities 2020 | S&P Global Platts

S&P Global Platts Analytics forecasts global recycled plastics volumes reaching nearly 20 million mt in 2020, or 8% of total virgin demand. This is up from just under 18 million mt in 2019, or 7% of total virgin demand.

EUROPE LEADS WAY, WITH DEMAND OUTPACING SUPPLY

In Europe customers have already pre-bought material for Q1 2020 on expectations of scarce supplies and prices at a premium to virgin.

Collection rates and quality will remain the key supply constraints.

In the recycled PET market specifically, the disconnect to virgin prices seen in 2019 should continue in 2020.

In the R-PET bottle-to-bottle market, 2019 proved there is demand for R-PET at higher prices than virgin resin. Likewise, buyers in the R-HDPE market are also becoming less cost-sensitive as media and consumer pressure ramps up and deadlines for companies' minimum recycled content targets fast approach.

Like the R-PET market, R-HDPE supply is likely to remain tight and buying interest strong through 2020. R-PET will remain the go-to plastic of choice for its recyclability, though, placing more pressure on this industry than HDPE.

As a result, further R-PET volumes are expected to displace virgin resin demand, while for R-HDPE the effect may be less significant.

New R-PET plants starting up by next year, including Biffa's 37,000 mt/year Seaham plant in northeast England and Morssinkhof-Rymoplast's 40,000 mt/year plant in Leipzig, Germany, are expected to directly displace virgin volumes. In response, some virgin resin producers are trying to incorporate R-PET into their contract volumes for 2020 by offering hybrid pellets.

ECONOMICS, COLLECTION RATES HOLD US BACK

Economics - essentially how much more consumers are willing to pay for recycled plastic packaging - is also a key issue in the US.

Part of the reason for the high cost of recycled plastics relates to the other big challenge facing the US - supply of raw materials; collecting waste in enough bulk to make it economically recyclable. For example, single-use grocery bags in the US can be recycled if collected in bulk but those thrown in a consumer's curbside recycling bin go to landfill because, in small quantities, they cannot.

While company commitments show progress is being made, at a government level the US lags other countries.

The US was not a signatory to the Basel Convention's agreement in May to ban mixed, unrecyclable and contaminated plastic waste exports. But most of the other 187 nations present that did help pass the amendment to the Basel Convention ensured the US has far fewer outlets for its plastic waste.

With one of the lowest plastic waste collection rates of developed countries, at 29.3% of PET, HDPE and PP bottles in 2017, according to industry body the Association of Plastics Recyclers, the US will face significant challenges treating its waste domestically.

ASIA EYES PROGRESS TO HIGHER-VALUE RECYCLED PLASTICS

After years of importing largely unusable waste from the West, and subsequent import bans, Asia has come to the forefront of the media's attention on plastic waste. Recycling in Asia has been fairly underdeveloped, but there are signs of positive change.

Japan is the leading Asian country for plastics recycling, with more than 90% post-consumer PET bottles collected, according to the Council for PET Bottle Recycling.

Several Japanese companies have started or plan to start using recycled PET for bottled drinks, including Asahi Soft Drinks Co., Ltd., Suntory Group, Coca-Cola (Japan) Co. and Seven & I Holdings Co.

Elsewhere in Asia, recycled plastics markets largely focus on lower grade waste, namely recycled polyester staple fiber (PSF).

China is Asia's largest recycled-PSF maker, with annual production of roughly 4.5 million mt/year, while India, the second-largest, converts around 550,000-650,000 mt/year, according to market sources.

Almost all of this production is consumed domestically in the textiles industries.

The impetus for recycled-PSF comes down to economics. Most recycled-PET bottles are turned into recycled-PSF because it is normally cheaper than virgin PSF.

Some Asian companies, including a number in Taiwan, are trying to go further by converting R-PET into polyester filament yarns, which has a higher product value than staple fiber.

It is because of these economics that only a small portion of R-PET is converted into R-PET pellets to produce bottles again.

It is largely uneconomic because of competitive virgin PET prices. Some of these markets also lack regulations on food approvals for recycled plastics.

There are steps being taken to change this, and 2020 looks set to be a promising year.

In Thailand, Royal Interpack Group and Indorama Ventures are leading the market but others are also entering the R-PET space. PTT Global Chemical will partner with Alpla Packaging to build a 35,000 mt/year R-PET and 15,000 mt/year recycled-HDPE plant in Rayong by the end of 2020.

Danone unveiled a 100% recycled AQUA water bottle in Indonesia in early 2019.

In addition, Veolia Services Indonesia is building a 25,000 mt/year R-PET plant at Pasuruan district, East Java, targeting an early-2020 startup.

Commodities 2020 | S&P Global Platts

-- Luke Milner, luke.milner@spglobal.com

-- Benjamin Brooks, benjamin.brooks@spglobal.com

-- Miranda Zhang, miranda.zhang@spglobal.com

-- Kristen Hays, kristen.hays@spglobal.com

-- Edited by Jonathan Fox, jonathan.fox@spglobal.com