Asia R-PE investments stall on bearish sentiment
SINGAPORE (ICIS)–Asian producers of recycled polyethylene (R-PE) have become cautious when it comes to plant expansions and equipment upgrades, as overall downstream demand softens on inflationary factors across the region.
- High feedstock costs, weak demand constrain investments
- Inflation, recession worries dampen buying appetite
- Long-term outlook remains robust on sustainability commitments
Among different types of R-PE grades, demand for recycled high-density polyethylene (R-HDPE) has declined, as consumers scale back on the use of personal care products and cosmetics.
Sentiment for particular grades of R-HDPE pellets, especially the premium grades, has turned bearish, as they are heavily used in personal care and – for some with US Food and Drug Administration (FDA) approval – cosmetics.
“This does not come as a surprise because inflation is hurting end-users in different countries,” an Indonesian recycler said.
“Consumers will prioritise the most basic of needs and skimp on personal care or beauty products,” the source added.
R-HDPE remains the most traded grade among R-PE cargoes due to the easier collection process, with used milk bottles as the primary feedstock in both northeast and southeast Asia.
What started as a robust outlook for this year for the entire R-PE market, mainly led by R-HDPE, has turned bearish amid inflation across Asian economies and recession fears.
Planned investments have been temporarily shelved as end-markets struggle, which has dampened demand outlook in the short-term.
While downstream demand has softened since the end of May, feedstock prices remained elevated, gaining support with persistent tightness, especially for premium bales used for R-HDPE.
“High feedstock costs and low downstream demand are [a] worrying combination for us producers,” a separate producer said.
“Some of us [producers] have been looking at expansion to possibly tap on more overseas markets as sustainability awareness and requirements grow, but the current climate dampens these plans,” he added.
Costs of construction material and equipment have also gone up amid increases in fuel, electricity and logistics rates.
However, the bearish outlook and slowdown in investment is expected to be short-lived, as long-term market fundamentals remain robust.
With sustainability targets expanding globally, required recycled polymer content in various packaging is likely to be increased by various governments and by major brands.
Focus article by Arianne Perez