Recycled polymers grapple with divergence in regional commoditization, inclusion mandates

Recycled polymer market participants see a mixed picture globally for the second half of 2024, with diverging levels of regulatory pressure and variable demand expectations continuing to hamper development of the sector across regional markets.

Tentative US optimism despite limited commoditization

Players in US recycled plastics markets are tentatively optimistic heading into the second half of the year, citing voluntary targets from some brand owners and mandates which aim to increase recycled content in plastic packaging, potentially pushing demand levels higher in the latter half of 2024 and into 2025.

Despite this, ongoing macroeconomic headwinds continue to limit consumer expenditure, which alongside external factors impacting US domestic market fundamentals has dampened any expectation of wholesale demand recovery.

Market participants expect cost-competitive virgin and imported recycled material to remain an underpinning trend, with consumption largely directed towards affordability. As a result, downwards pricing pressure on domestic material is likely, impacting recycler profit margins.

The US recycled plastics market remains in the early stages of development, with the absence of uniform contract pricing structures that are common in most commodity chemicals markets limiting broader commoditization.

While buyers tend to purchase steady volumes of post-consumer polyethylene terephthalate and high-density polyethylene each month, they are largely reluctant to establish contracts amid a lack of market development.

Extended producer responsibility (EPR) and mandatory PCR content legislation should provide more impetus for contractual relationships, according to market participants.

Vertical integration has also been cited as another avenue to stability, although some sources have expressed uncertainty about how this will impact supply and pricing moving forward, with consumption of feedstock bales becoming more concentrated and smaller operations struggling to bid at competitive levels.

Legislative, virgin market dynamics critical to European outlook

In European R-PET, the second half of 2024 is expected to see a boost in consumption for food grade material driven by legislative pressures.

As the EU's 2025 Single Use Plastic Directive draws closer, historical consumers of virgin PET are expected to begin R-PET product approvals and establish more consistent procurement of circular material from the end of the third quarter of 2024.

Market participants remain optimistic on the achievability of the targets set by the EU despite ongoing concern surrounding sufficient waste collection capacity in Europe, which is needed to meet the anticipated influx of demand for R-PET.

However, despite several major summer sporting events in Europe and generally warmer temperatures -- factors which typically trigger stronger buyer-appetite for R-PET -- market sources expect underlying demand to remain weak in the second half of 2024.

In European recycled polyolefins and styrenics markets, demand fundamentals in the second half of 2024 are expected to be contingent on virgin market conditions, in a continuation of the dominant trends across the first half.

Tight import and domestic supply of virgin material in the first half of the year has increased the cost competitiveness of recycled products, driving European consumers in search of volumes back to recycled and circular material sources.

While uncertainty surrounding the longer-term viability of tightness in virgin markets has led to expectations of reduced consumption from most European players in the second half of 2024, wider European regulation setting inclusion targets for recycled content has solidified underlying optimism for long-term sector dynamics.

"It's a bit early on certain demand, but brand owners have proven they can transition from recycled to virgin," a recycler said. "Most don't have a need to buy consistently at this stage, but we are expecting the final quarter to pick up."

Asia's absence of mandates slows growth

Asian recycled polymer markets are expected to remain mixed in the absence of mandatory regulations.

Demand is expected to see consistently slow growth in recycled polyolefins, with regional consumption solely driven by voluntary brand commitments. In India, regulations are expected in 2025.

"I don't think there will be any positive turns for the next six months. The third quarter is traditionally low season for demand," an R-PE trader said.

Additionally, a thin price spread between scrap PE plastics and recycled material may force producers to reduce operating rates, said sources.

"Most brand users are aware of extended producer responsibility, but it is not a law... there is also no incentive for producing recycled PE," said a trader.

In R-PET, sources across Asia remain optimistic on exports to keep markets rolling. Strong demand is expected from the EU due to regional regulatory mandates, while recyclers from India also anticipate increased demand from the Middle East and the Americas.

Sources have been careful to not overstate the potential expansion of trade flows, with recyclers noting that higher freight costs have clipped any appetite for Asian origin material flowing into Europe.

In Southeast Asia, feedstock bale prices have seen strength since early 2024 due to increased buyer appetite, but recyclers anticipate a price correction in the near term.

R-PET pelletizers across the region will also closely monitor the spread between virgin and recycled material, with any increased cost competitiveness of the latter likely to improve consumption in the absence of strict regulation.

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Chemical Trends H2 2024
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