Brazil's PET recycling industry struggles with low margins, insufficient supply

As Brazil's recycled polyethylene terephthalate market grapples with insufficient feedstock supply, prices for post-consumer PET bales are rising against a backdrop of competitively priced Southeast Asian virgin resin imports, constraining the spread between flakes and bales and posing a major challenge for the financial viability of recyclers.

Platts last assessed post-consumer PET clear bottle bales at Real 5.20/kg DDP São Paulo on Aug. 22, up Real 0.70/kg since Aug. 12, when the assessment was launched. Recycled PET clear flakes were assessed at Real 7.50/kg DDP São Paulo, up Real 0.50/kg since Aug. 12, reflecting the high pressure on recyclers' margins.

Low scrap availability hurts recyclers' margins

As increasing consumer awareness and evolving regulations push brand owners and fast-moving consumer goods companies to increase the post-consumer content in their packaging, scrap collection is still not matching recyclers' demand. Additionally, other applications for post-consumer resin is also supporting steady demand and higher scrap prices.

Increased competition for buying post-consumer PET bottles bales has been raising prices since the beginning of 2024. Low supply has been so notable that even green-colored material, which used to sell at about a 20% discount, is now trading at parity with clear material.

Platts last assessed post-consumer PET green bottle bales at Real 5.20/kg DDP São Paulo on Aug. 21, while recycled PET green flakes were assessed at Real 7.50/kg DDP São Paulo.

"To secure materials and meet our customers' needs, we are not spending much more energy on discussing prices, but rather on ensuring that we get the materials we need when we need them," a recycler said.

A bales seller said their margins have not risen with prices, as the price they pay for scrap is also increasing.

Recyclers are usually unable to immediately pass through bales price increases to downstream flakes, as the market sets prices based on the previous month feedstocks prices and the material competes with the virgin resin.

Considering the grinding process yield, usually around 70%, and all operating costs, recyclers in Brazil have been dealing with margins approaching negatives throughout 2024.

Amid weak margins, the market has seen several smaller recycling companies go out of business as larger players consolidate their positions.

Some recyclers have alternatively been turning to importing dirty flakes and cleaning and processing them in the materials recovery facility, but volumes are still short.

With that, sources said the Brazilian industry is currently operating around 70% of its total installed capacity of 500,000 metric tons per year for recycled PET, which is considered a low capacity utilization.

Competitiveness with virgin material

Despite rising feedstock costs, prices for downstream flakes are capped by the virgin resin price.

In the absence of mandates for post-consumer recycled content, most buyers start switching to the cheaper virgin material as soon as flake prices surpass this threshold, making virgin PET resin prices a key factor in the recycling market.

Brazil became a net importer of virgin PET resin in 2023, with cheap material coming mainly from Southeast Asia. Brazil imported 71,549 mt of the product in 2023, mostly from Malaysia, Oman and Vietnam, according to data from the Ministry of Development and Foreign Trade.

Prices for imported resin from Asia have been impacted by logistical issues in the global shipping market caused by Houthi attacks on tankers in the Red Sea. However, virgin resin prices remain competitive against recycled resin in Brazil, prompting marginal buyers to opt for the most cost-effective option and exerting downward pressure on domestic flakes pricing.

In an effort to protect the domestic market and strengthen national production, the Brazilian Chemical Industry Association requested the Brazilian Foreign Trade Chamber in early February increase import tariffs for PET from 12.6% to 20%. A decision on the request is expected in late August or early September.

Brazil PET recycling rate among world's highest

As demand growth for post-consumer PET in Brazil outpaces virgin materials, fueled by increasing cultural awareness and a heightened appreciation for sustainable packaging, recycling volumes are showing notable improvement.

Moreover, market participants said rising bale prices are drawing investments into scrap collection activities, although supply challenges persist.

PET is the most recycled plastic worldwide, and Brazil's recycling rates are among the highest in the world.

Recycling rates in Brazil reached 56.4% of all PET packaging discarded by the population in 2021, according to the Brazilian Association of PET Industry, or Abipet. The compounded annual growth rate of the recycled volume between 2016 and 2021 was approximately 8%.

Additionally, the 15.4% growth of PET packaging recycled volumes from 2019 to 2021 surpassed the growth of virgin resin consumption, which was 12.4% during the same period.

Of the materials recycled, 29% were used as preforms or bottles, 24% in textiles, 17% in reels and thermoforming, 13% in chemicals, and 11% in strapping tapes.

The share of preforms and bottling application grew from 24% in 2019, with brand owners using more recycled content in their packaging to comply with sustainability goals and meet increasing consumer awareness.

The Brazilian PET recycling industry is up against significant challenges, and current dynamics suggest that the near to medium term will not see much relief.