Price and market trends: Europe R-PET players see consolidation in 2014

07 March 2014 10:50 Source:ICIS Chemical Business

A combination of low prices, thin margins and a difficult investment environment are driving expectations that the European recycled polyethylene terephthalate (R-PET) market will see consolidation as well as closures in 2014.

“Overcapacities combined with pressure from virgin PET leaves a lot of R-PET producers struggling,” a sheet producer said.

European R-PET players expect global virgin PET production capacity to grow in 2014 and this is expected to keep R-PET prices subdued. “With more virgin [PET] capacity coming on stream, virgin will be low this year. R-PET will have to follow the low price level,” a food grade R-PET pellet producer warned.

Improving efficiencies of scale to offset the anticipated weak market fundamentals is widely seen as the most appropriate course of action for European R-PET players.

“I think there will be more consolidation in recycling. This year we will see some consolidation,” a food grade R-PET pellet producer said. “Recyclers have to improve sorting, invest in better washing process. On R-PET food grade pellet you have to invest a lot of money to achieve the quality level. Some of the recycling companies will be taken over by bigger ones or just disappear,” it added.

“With increasing usage of R-PET in products, the quality of the material will become more and more important. In this context a major challenge for producers of R-PET is the necessity of investing in up to date equipment,” a sheet producer said.

GERMANY GROUND ZERO
Several sources cited Germany as one of the regions most likely to see consolidation in 2014. “I see consolidation in the German market especially. There are still people entering the market; that I believe is very strange,” a sheet producer said. “Also I see pressure on recyclers getting bigger.” A food grade pellet producer reiterated the sentiment: “I think consolidation will happen in Germany and also Poland. 1 to 2 players will disappear.”

As well as consolidation and investment in expansion, R-PET players expect companies to go out of business in 2014. Nevertheless, sources expect back-integration will be the key to survival in coming years, as prices are expected to remain under pressure.

“It is likely that certain market participants will disappear in the coming years. I see the best chances for those being backwards integrated, i.e. have access to the [post-consumer] bottles,” a sheet producer said.

“Some recycled products compete with virgin and the target from brand owners is not to pay much more than the virgin [PET] price for the R-PET. We have to follow the virgin, and virgin will be low this year,” said a food grade pellet producer.

By Iain Packham