Recycled polymers demand set to ease in Q1 on regulatory woes, global uncertainty

Global recycled polymer markets are likely to slow down early next year, as manufacturers worldwide scramble to secure post-consumer resin to meet mandated or voluntary commitments and as recyclers struggle to procure enough feedstock to meet this demand.

Market sources have highlighted voluntary targets from some brand owners looking to include post-consumer recycled polyethylene and polypropylene in their plastic packaging by 2025, which could push demand higher.

On the mandated front, the EU's 2025 Single Use Plastic Directive is looming, with market players likely to take advantage of the expected seasonal pickup in demand from Q2 2024 onwards, to test capacities ahead of the mandatory 25% inclusion rate.

Key recycling industries in Europe are expected to face a year of consolidation in 2024, with regulatory pressures, voluntary commitments and weak 2023 market conditions sharply weighing on the sector outlook.

In Asia, recycled polyethylene market players are cautiously optimistic of demand improvement in 2024, as Europe looks to meet sustainability targets for 2025, while participants in the US recycled plastics markets are hopeful, as brand targets approach for post-consumer recycled material.

"As you look into 2024 and 2025, some of the legislation and pledges are looming giving a push on the demand side. At the same time, we expect to continue seeing challenging macroeconomic conditions and an oversupply olefins/polyolefins markets," according to Olivier Maronneaud, global lead of plastic circularity at S&P Global Commodity Insights.

Weak demand seen for Q1

The first quarter of 2024, however, is expected to experience ongoing sluggishness from the lackluster recycled polymers demand this year, exacerbated by the seasonal dip in buying appetite during winter.

Meanwhile, expectations of ongoing macroeconomic headwinds and growing focus on cashflow from consumers have led to pessimism that consumption will improve towards the first half of 2024, with conditions in derivatives curbing consistent liquidity in the sector.

The cost-competitiveness of virgin material will likely remain an underpinning trend in H1 2024 for recycled polymers, with consumption largely directed towards more economical items.

"Next year will change a lot with sustainability goals, 2025 is coming, many big brands have announced goals and are looking to increase their content", a converter said, before adding that "it all depends on the customers – they need to wake up and use more recycled material, otherwise the struggle will continue".

Recycled polystyrene demand, specifically, will be based on the interest rate scenario and a drop in rates could prop up construction or housing-related buying appetite.

Southeast Asia's easing cost-competitiveness

In Southeast Asia, recyclers were concerned about higher manpower costs, with the effect of regional plant startups and expansions in H2 2023 likely to have an impact on supplies in the first half of 2024.

Labor costs in collection hubs such as Indonesia, Thailand and Vietnam are also expected to rise on strong calls to increase the local minimum wage.

While the long-term demand picture is positive, cost-pressures may result in Southeast Asian resin losing competitiveness relative to suppliers in other markets such as India.

In India, market players expect improved demand as domestic recycled polyethylene buyers are likely to start using a share of recycled material in their end-product ahead of the implementation of the government guidelines for 2025.

The country's Ministry of Environment, Forest and Climate Change has set recycling rate targets of 30%-50% for various plastic packaging by 2025, along with recycled plastic content requirements of 5%-30%.

However, sources in India found the recycling rates as ambitious, as the process would require huge capacity additions and similar increase in collection rates. Some domestic buyers have already started using a percentage of recycled polyethylene to secure future supplies.

Food grade pellets attract US contracts

Pellet prices will continue to see volatility in 2024, sources said, with non-food application converters expected to keep switching between recycled and virgin-based products on cost considerations, though prices of food grade pellets will likely see more stability due to an increased proportion of contract volumes.

In 2024, buyers will have to choose whether to stock up early when prices are low and demand uncertain, or wait for demand clarity amid risks of higher pricing and limited supplies.

There were mixed views on upcoming contractual commitment levels for 2024.

In H2 2023, sellers saw increased interest in contracts, as buyers looked to secure supplies and ensure more consistent price levels.

"Stability is what everyone wants to see, versus the peaks and valleys from the past two years," said a broker.

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Chemical Trends H1 2024
This feature is part of our bi-annual report analyzing the biggest themes and trends that will dominate chemicals markets in the year ahead. Explore more features below, or to read articles looking at the year ahead for a wider range of chemical markets, visit Platts Connect

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