Special Report: R-PET uptake is taking off

07 March 2014 10:51 Source:ICIS Chemical Business

Recycled PET gains prevalence in Europe as its cost and environmental benefits make it an appealing alternative

Over 60bn polyethylene terephthalate (PET) bottles were recycled in Europe in 2012, making it the most recycled plastic material in the region, according to European industry body PETCORE EUROPE.

 

Europe collected 1.68m tonnes of PET bottles in 2012

Copyright: Rex Features

Recycled polyethylene terephthalate (R-PET) is surprisingly commonplace because its uses are varied: from making new bottles and sheet for thermoformed products, to carpets, textiles and strapping used for packaging and shipping applications, as well as for automobile products, including fuse boxes and bumpers.

Furthermore, the use of R-PET brings financial as well as more intangible benefits, such as carbon cost savings, green and sustainability credentials. It is these many beneficial attributes that have led to the market’s considerable growth over the past five years, not just in terms of volume, but value as well.

The carbon cost of R-PET, for example, is approximately one-third of its upstream virgin PET equivalent, according to Jonathan Short, founder and deputy chairman of ECO Plastics, a reprocessor of recyclable materials.

He notes that virgin PET accounts for about 40% of the total carbon cost of packaging in the carbonated soft drinks industry. “If they can replace 25%, it has a huge impact on the carbon cost on to shelves. All the main brand owners have a 2020 vision,” he adds.

AMBITIOUS TARGETS
Soft drinks giant Coca-Cola, for example, has set itself the 2020 target of recovering 75% of the bottles and cans that it sends to developed markets. It says that its recovery rate in developed markets is currently around 50%.

The company estimates that about 60% of its total beverage volume is sold in PET bottles. In 2009, Coca-Cola set a goal of sourcing 25% of its PET plastic for bottles from recycled and renewable materials by 2015.

Despite its green targets, the company has an obligation to its shareholders and using R-PET presents its own unique challenges, as Coca-Cola attests in its 2012-2013 Sustainability ­Report: “Over the last decade, demand for R-PET has increased significantly; demand for R-PET fibre, used to make clothing and other non-food products, is particularly high. And while increased demand is a positive development for the R-PET market, greater demand has also driven up prices and reduced supply. In addition, food-grade R-PET requires more processing and commands a premium over non-food-grade R-PET, making it even more of a challenge for us to cost-effectively incorporate more R-PET in our packages.”

This R-PET industry’s growth is characterised by data that shows that 1.68m tonnes of PET bottles were collected in Europe in 2012, a 5.6% increase over 2011.

Reviewing the 2012 market performance, Casper van den Dungen, PET chairman at industry body Plastics Recyclers Europe, said in a press release: “In 2012 the fibres market was still the single largest end-market for recycled PET, but strong growth in the sheet and bottle market are putting these three markets at similar levels.”

COMPETITIVE ENVIRONMENT
Despite these positive attributes, in 2013 the market suffered from increased competition, falling prices and deteriorating margins. For the R-PET market, price competition between R-PET and virgin PET is an ongoing concern.

“R-PET is basically a substitute material for virgin,” says a plastic film producer. “Therefore whenever virgin gets expensive R-PET producers will try (and probably succeed) to create margin. Whenever virgin is low, like today, R-PET producers will struggle to achieve reasonable prices.”

A fibre producer adds: “Particularly since early 2013, [virgin PET] has put pressure on R-PET flake producers due to margins being squeezed more and more. Post-consumer bottle prices have fallen in the second half of 2013 but at a slower pro rata rate decrease than the virgin and R-PET flake price.”

R-PET margins shrank in 2013 as prices followed a downward trend set by virgin PET. Virgin PET’s decline was initially driven by a significant uptick in investment in manufacturing in Asia, which ultimately resulted in cheap imports flooding into Europe.

“R-PET needs to be competitive with virgin PET. When you look at plummeting virgin, from €1,400/tonne to €1,100/tonne free delivered (FD) Northwest Europe (NWE), you see [R-PET] flake will have seen a similar drop. I don’t think R-PET will be able to release itself from its link to virgin pricing,” points out an R-PET flake and food grade pellet producer.

It notes, however, that increased demand from large companies could help separate the markets and this is already happening: “If you consider a bottle from Lidl, 40% is already containing recycled material. The percentage of virgin [PET per bottle] is falling. Virgin [PET] is softening.”

After the strong growth of the R-PET market in previous years, 2013 was a tough year for the industry with R-PET prices and margins falling significantly, but market players generally still anticipate growth.

“It is hard to put a number on it [European R-PET market growth]. Sure it is growing in terms of usage for bottle-to-bottle recycling, use as sheet. Fibre is the only one declining, there is less fibre production in Europe,” a producer of R-PET flake and food grade pellets says.

It warns, however: “There are more recyclers in Europe, more availability of feedstock, this brings more price competition.”

Another food grade pellet producer says: “I would say the market is still growing. Packaging is growing, a lot of sheet producers are using more [R-PET] flakes as well. Strapping is growing as well. The bottle-to-bottle market I believe is also going to grow also. Brand owners want to use more recycled product. I see more growth in 2014, up 5-10% in recycling.”

LACK OF INVESTMENT
A UK reprocessor was more pessimistic, saying that the UK market has hit a plateau, as there has been no investment to increase the volumes of PET recycling this year.

It says: “It’s hard to make money in PET recycling. There are some horrendous losses being suffered on a monthly basis from companies in Europe. Therefore, there is a reluctance to invest into that market, it is a very difficult and challenging market. There is a squeeze between raw material and sales pricing.”

A producer of plastic films was also bearish: “Overall with virgin PET prices expected to remain relatively low in the foreseeable future R-PET business will be a very tough one. I do not see much chance of good margins for producers. Overcapacities, combined with pressure from virgin PET, leaves a lot of R-PET producers struggling.”

It can be difficult to outline a business case for investment when margins are falling, but a lack of reinvestment is a growing problem for the industry as more post-consumer bottles and R-PET flake are being discarded as waste, or are being de-valued through contamination. Furthermore, initiatives to reduce the weight of packaging and bottles, as well as the greater use of R-PET in packaging and bottles, is impairing recovery rates as well as the quality of the material being recycled.

According to the US-based Association of Postconsumer Plastics Recyclers, “The most valuable uses for post-consumer PET require the transparent and colourless properties of the plastic seen in most soft drink bottles. So with post-consumer PET it is especially important to prevent contamination during recycling that can have a negative impact on the colour and transparency of the finished resin.”

A food-grade pellet producer says: “The quality of the flakes has been deteriorating over the last couple of years, due to the bottle’s high content of recycled material. The flake quality itself has got worse in terms of colour.”

The issue of improving the collection of post-consumer bottles and PET as well as the sorting of that material, is a fundamental concern for the industry.

One flake and food grade R-PET pellet producer says: “I think the greatest hurdle [for the R-PET market] is collection and sorting. A number of European countries have very good collection systems – Germany, Scandinavia and the Netherlands. They have deposit systems, they inherently take care of mono-streams, unmixed [post-consumer] PET bottles. This is the best for high level PET recycling.

“In countries where there are not similar systems in place for example, the UK, they have low grade R-PET. There are limitations in percentages that can be used.”

INCREASED COLLECTION RATES
Market participants believe that an improvement in collection rates would help cover increased R-PET demand from the big brand owners and retailers.

“With increasing usage of R-PET in products, the quality of the material will become more and more important,” says a food grade R-PET pellet producer. “In this context a major challenge for producers of R-PET is also the necessity of investing in up to date equipment. Talking about investments, on the producer side it is likely that certain market participants will disappear in the coming years. I see the best chances for those being backwards integrated.”

With the current state of the market – low prices, thin margins, declining grades and stiff competition between market players as well as price competition with virgin PET – investing in new processes and machinery is tricky. Many market players are therefore expecting market consolidation in 2014.

“Some of the recycling companies will be taken over by bigger ones or just disappear,” warns one food-grade pellet producer. “This year we will see some consolidation. Of course, some recycling products compete with virgin PET, so the target from brand owners is not to pay much more than the virgin price for the R-PET.

“We have to follow the virgin price and virgin will be at low this year – I’m seeing below €1,100/tonne. This will be the level for the whole year probably. More virgin capacity is coming on stream. R-PET will have to follow the low price level.”

By Iain Packham