Europe R-PET food-grade pellets hit high of €1,100-1,180/tonne

21 June 2010 23:59  [Source: ICIS news]

LONDON (ICIS news)--Prices of European recycled polyethylene terephthalate (R-PET) food-grade pellets have hit a record high, increasing by €30-50/tonne ($38-63/tonne) over the past week to €1,100-1,180/tonne, due to tight supply and rising R-PET flake prices, buyers and sellers said on Monday.

Prices across all R-PET grades were now at their highest point since ICIS records for the material began on 19 June 2006.

“[Prices] won’t go down quickly...not now, demand is strong enough to sustain the market,” said a flake and pellet buyer.

The previous record price for R-PET food-grade pellets was €1,150/tonne, which was seen between 12 September-30 October 2006 and again on 7 June 2010, before the new high was reached this week.

All prices were agreed on a free delivered (FD) northwest Europe (NWE) basis.

According to food-grade pellet players, there were now substantial amounts of material being sold at prices above those for virgin polyethylene terephthalate (PET). Some R-PET buyers said they had been offered prices as low as €1,120/tonne FD Europe.

In the past, R-PET prices have always traded below virgin PET prices because R-PET is made from used material. But increased interest in corporate social responsibility has led more and more downstream companies to use R-PET, making prices rise above those for virgin PET, sources added.

Some sources said they expect food-grade pellet prices to fall within the next few weeks, because large buyers would not be willing to pay more than virgin product to source material.

Some food-grade producers also said that they would continue to sell material at a minimum 5% discount to virgin prices in order to remain competitive.

“Virgin [PET] could bring prices down. We’ve been offered €1,120/tonne for virgin. For some R-PET pellets, it’s €1,180/tonne, so what’s the point? I have less scrap with virgin, so it makes no sense,” said an R-PET pellet buyer.

However, the majority of sources said they expect prices to remain strong for the foreseeable future because of high prices further up the R-PET chain.

“You can reduce the percentage [of R-PET] in a project if you don’t like the cost, but are you going to remove it completely? I doubt it, not when they’re promising their customers that they’re using recycled material,” said a major producer.

Margins of food-grade pellets have been squeezed in recent months by rising R-PET flake prices, which have increased at a faster rate than virgin PET prices.

A major food-grade R-PET producer said that the average extrusion cost between colourless flakes and food-grade material was €150-200/tonne. With colourless flakes trading at a minimum of €900/tonne FD NWE, this would mean that the cost of food-grade production is at least €1,050-1,100/tonne.

“We have squeezed our margins. The margins of sellers [upstream in the R-PET chain] are 25%. We are down to 10%. We’ve squeezed our margins, they have to squeeze their margins, too,” said an R-PET food-grade pellet producer.

As a result of tight margins, some sources said they expect food-grade pellet producers to increase colourless-flake production at the expense of food-grade pellets, because flakes were currently more profitable and demand was strong due to an increased number of end-users using recycled material as part of their corporate social responsibility initiatives.

Colourless-flake material rose by €50/tonne at the top end of the range to €900-1,000/tonne FD NEW due to low availability of material. The highest prices were for material from Italy, where supplies are shortest, sources said.

Colourless-flake prices first hit record highs on 26 April 2010 and have been increasing ever since. The previous high was €885/tonne, from 16 June 2008 to 3 November 2008.

Prices across all other grades remained stable, at their previously established record high levels.

The R-PET market has been in tight supply since the fourth quarter of 2009 because of low collection rates at post-consumer recycling facilities.

This was attributed to several factors, including: the colder-than-expected winter, which led to fewer purchases of beverages in plastic bottles, the major source of post-consumer collection material; the economic downturn in 2009 and environmental concerns, which led to lower consumption of water bottles; and a light-weighting of PET content of around 25% in virgin bottles during 2009, which meant that more bottles needed to be collected per kilogramme of R-PET produced.

Although warmer weather across much of Europe has resulted in improved collection rates, this has been counterbalanced by peak-season demand in the bottling sector, which has emptied the R-PET chain of material.

Tight supply was expected to remain a problem in the industry throughout 2010, the majority of sources said.

($1 = €0.80)

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By: Mark Victory
+44 208 652 3214

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