As high inflation dents consumer demand, sustainability and plastics recycling initiatives take a hit

This is the last of a two-part series focusing on the plastics recycling landscape in the US and Mexico, the current dynamics between the two markets, as well as expectations on the potential impact of legislations and policies on the sector. Read part 1: Mexico joins plastic sustainability battleground in US West Coast .

In the Americas, the recycled market dynamics for polyethylene terephthalate, or PET, vary significantly across regions, with challenges and opportunities influenced by factors such as geography location, local policies, consumer behavior and the availability of recycling infrastructure.

Demand for recycled PET in the Americas is seasonal, with a noticeable increase as the weather warms up in spring and summer. This uptick is linked to warmer temperatures that boost consumer spending, particularly on products packaged in PET, such as beverages convenience food, and outdoor recreational items. Conversely, demand dips beginning in autumn and throughout the winter months, when cooler weather leads to a decrease in outdoor activities and thus, a reduced consumption of products that utilize PET.

But this seasonal demand in the US has been offset since the pandemic by factors such as limited consumer spending and high inflation rates impacting short-term demand levels, market sources said. Consumer spending was down 9.8% in the second quarter of 2020 from the same period in 2019, according to the US Bureau of Statistics. In Q2 2021, the pandemic was still affecting the economy, but businesses and consumers had begun to adapt.

Economic headwinds continue to impact current consumer expenditure, with inflation limiting purchasing power and shifting focus to essential goods; job security and wage trends impacting consumer confidence and spending behavior; and interest rates influencing big-ticket purchases by affecting the cost of borrowing for consumers.

In Mexico, despite economic challenges, demand for recycled PET has remained consistent throughout the years, market participants said. According to Ecología y Compromiso Empresarial, or ECOCE, collection rates have been improving since the pandemic. This positive trend is also reflected in the country's increasing appetite for recycled material. Based on the 2023 report on the National Agreement for the New Plastic Economy in Mexico, which surveyed 80 companies in the plastics industry, post-consumer content in packaging has also been increasing.

Price disparity

On the US West Coast, progressive environmental regulations and a strong culture of sustainability drives high post-consumer PET recycling rates, compared to the rest of the country. However, the competitiveness with imported resin has impacted short-term demand for domestic recyclers. The proximity and accessibility of the region to ports allows for easier access to imported materials with minor transportation costs.

Currently, the clear flake and food-grade pellet markets in the US West Coast have yet to show signs of seasonal demand, softening prices amid peak bottling season.

In the US Midwest, imported materials are not as accessible compared to the West Coast due to its geographical location. With longer distances to ports, the price of delivered imported material is higher and there is increased competitiveness of domestic prices.

The US Southeast is closer to ports, but it is also home to a significant number of plastic recycling manufacturing facilities, leading to increased competition for bales, which in turn tends to lead to higher feedstock prices.

Both Midwest and Southeast bale and clear flake markets continue to see an uptick in seasonal demand levels, followed by strong pricing approaching peak summer season.

In both regions, most bales have a minimum post-consumer PET bottle content of 60% and are gathered through curbside collection. In contrast, California has premium-grade material sourced primarily from redemption centers, with a minimum PET content of 70%, but the region also includes curbside material. Bales that have a higher percentage of PET post-consumer bottle content are considered to be higher quality, leading to higher market price. As a result, they also lead to a higher production yield when processing them into PET flakes.

However, on the West Coast, the average yield-adjusted spread between clear flakes and post-consumer premium bottle bales is the lowest among the three US regions due to low clear flake demand levels for domestic material, and elevated post-consumer bale prices amid strong export demand.

Challenging times ahead

The US market is displaying a slight sense of optimism for the second half of 2024, pushing expectations for higher demand levels of post-consumer recycled material in to 2025, as mandates for post-consumer recycled content and adoption of Extended Producer Responsibility, or EPR, policies would incentivize recycled PET recycling.

EPR policies use packaging fees to direct industry funding toward improving the recycling system and motivating brand owners to make their packaging recyclable.

However, post-consumer recycled content, or PCR, voluntary targets are also being pushed back. In June, the US Plastics Pact has updated its plan for companies to minimize plastic waste as the targets remain unmet with only a year until their original deadline.

First announced in 2020, the pact set 2025 to achieve average 30% of post-consumer resin or "responsibly sourced bio-based content" in all plastic packaging.

Its signatories, including major corporations such as The Coca-Cola Company, Nestlé and Kraft Heinz, now have until 2030 to achieve these goals. The initiative also includes different goals by material, with beverage bottles hitting 25% PCR by 2026 and 60% by 2030.

The Mexican market is optimistic about consumer demand for recycled material, despite anticipating supply constraints and price hikes. But wider legislative requirements, voluntary targets and recycled content mandates are needed on expanding and solidifying recycled PET demand across the Americas. This will not only secure demand, but at the same time, will push collection levels higher.

According to a 2023 McKinsey & Company report, if brands move ahead to fully meet their stated recycled-content commitments for 2030 in US, demand for recycled PET will rise by some 15%/year from 2022 and 2030. Over the same period, supply is expected to continue growing at only around 1%, resulting in demand being three times the level of available supply by 2030.

In Mexico, the current installed capacity for recycled PET is enough to recycle 70% of the PET end-user packaging in the market, according to ECOCE. However, to ensure sufficient supply for capacity additions, an increase in post-consumer bottle collection is needed to balance out market fundamentals.

In the Americas, 2024 has already challenged the commitment of companies to sustainability. This will continue to be a test case for the industry as it looks ahead to further developing in plastics recycling.

Read part 1: Mexico joins plastic sustainability battleground in US West Coast