SE Asia, India plastic recycling weighed down by pandemic, low oil prices

SINGAPORE (ICIS)–The plastic recycling value chain in southeast Asia and India will continue to be weighed down by the coronavirus pandemic and weakness in crude oil markets, with a significant proportion of the industry either closed or operating at low capacities.

“The [pandemic-induced] lockdowns have stopped the recycling industry in most cases from operating and significantly slowed down the production and consumption of goods globally and locally,” said Tam Nguyen, head of operations at Singapore-based recycling research and strategy firm GA Circular.

Nguyen was speaking in a webinar organised by ICIS on 19 August.

“This means that for recyclers, there is less feedstock available and lower demand for their recycled plastics,” he said.

The lockdowns and continued restrictions on industries as well consumers globally, in addition to the economic downturn/low consumer confidence, have reduced demand for plastics overall, he said.

The plastics recycling value chain has faced challenges well before the coronavirus pandemic, one of them being the decline in global crude oil prices.

Under current market conditions, recyclers generally need oil prices to be at least $70/bbl for their products to compete effectively against virgin plastics, Nguyen said.

Global oil benchmarks are currently trading at around $40/bbl mark.

Low crude oil prices have driven down the values of virgin plastics by about 30% year on year in Thailand, which is a major producer of plastics in the region, he said.

Polyethylene terephthalate (PET), high density polyethylene (HDPE), polypropylene (PP) and low density polyethylene (LDPE) all fell by nearly a third of their 2019 values so far, according to Nguyen.

“This has reduced recycled plastic consumption and increased virgin plastic consumption, as stakeholders have reverted to virgin plastic due to its significant price discount,” he said.

The fall in virgin resin prices has forced recyclers to slash prices by an average of 21% across the four key resins.

“There is a short-term reaction to low virgin [resin] prices that will ultimately affect supply because production had to be cut back because of the weak demand,” said Helen McGeough, senior analyst for plastic recycling at ICIS.

GA Circular, in a study commissioned on behalf of investment management company Circulate Capital, looked at five countries namely India, Indonesia, Thailand, Philippines as well as Vietnam and found that feedstock shortages remain a key factor impeding volumes of recycled material across the region.

“The first country in and out of complete lockdown were Vietnam and Thailand. But according to GA Circular findings so far, there has been no significant recovery in trading volumes for recycled material and are significantly lower than pre-coronavirus levels,” he said.

There is a lack of confidence in the value chain in Asia for a swift recovery, Nguyen said.

“Their major concern is the projection of low crude oil prices for the foreseeable future,” he said.

Of the 47 PET recyclers in India, 15 are closed and the remaining 32 are operating at 25-30% of capacity and are not selling all output, according to the Recycling Association in India.

“If the situation continues for the next three to six months, 50% are expected to go bankrupt,” according to the association.

The industry in the long term will also have to contend with uncontrollable factors influencing the global market, including changing consumer habits, regulations and new plastic materials, said ICIS’ McGeough.

“There are positive indications that there is support for sustainability in the longer term despite the fact we have this huge blip from the pandemic especially in terms of demand generally which ultimately affected the recycled markets negatively,” she said.

Focus article by Nurluqman Suratman

Visit the ICIS Coronavirus topic page for analysis of the impact on chemical markets and links to latest news.

Click here to see regulatory targets and a list of chemical and mechanical recyclers on the ICIS Circular Economy topic page.