K Fair ’22: Europe recycled polyolefins attempt to weigh high costs against low demand

LONDON (ICIS)–The balance between available storage space, cashflow, and the risk of negative margins will be key on players’ minds throughout the European recycled polyolefins chain as they head to the K Plastics Fair.

Overall demand for Europe recycled polyolefins fell by as much as 40% in September, year on year, according to market estimates.

In the construction sector, demand fell as much as 50%.

The K Plastics Fair is the largest trade fair and networking event for the European polymers and plastics industry.

IT’S ALL ABOUT COSTS
Part of this slowdown is the result of compounders turning down operating rates or switching to short-time working on the back of high electricity costs.

Another reason for the slowdown has been the general negative macroeconomic conditions and the cost-of-living crisis hitting Europe, which is limiting consumer demand.

But part of the slowdown in the European recycled polyolefins industry is also due to low virgin product prices – particularly off-spec material – which continues to drive players in non-packaging sectors to substitute away from recycled materials.

At the same time, production costs have increased sharply due to the current high energy prices and logistic costs.

On 22 September, industry association Packaging Recyclers Europe (PRE) said current energy costs could lead to bankruptcies across the recycling industry unless action is taken by the European Commission, the EU’s executive body.

According to a PRE survey, average energy costs for recyclers have increased from a typical level of around 15-20% of production costs – minus labour and maintenance – to a current average level of 70%.

Energy costs vary depending on individual country energy mixes and individual producers’ contract terms, which is creating significant disparity between players in the recycling chain.

This, in turn, is leading to increased regionalisation of prices as well as widening ranges, depending on individual seller storage and cash flow position, along with individual energy costs.

Market players estimate that to produce one tonne of recycled polyolefin pellets from rigid post-consumer waste requires on average around one megawatt of electricity, although this will vary sharply depending on grade, wastage rate, and individual set-up.

Producing pellets from flexible material, meanwhile, is even more energy intensive.

WAITING FOR HELP
Coupled with this, a wait-and-see attitude across the markets in anticipation of various g government announcements on how they intend to tackle the energy crisis has further limited buying interest.

Different governments across Europe taking differing actions risks intensifying disparity between market players’ commercial positions based on geography.

The recycling industry typically operates on narrow margins and on smaller cash reserves than the petrochemicals sector, placing them at greater risk of bankruptcy in any sustained downturn.

Currently, the market is faced with the spectre of rising costs and falling demand.

Multiple players have so far preferred to sacrifice volumes rather than price. Nevertheless, several recycled polymer markets have mentioned how waste managers’ storage space is becoming maxed out – particularly in Germany.

This may force waste managers to destock at low values, or to incinerate bales to create space for incoming waste volumes.

While flake and pellet producers have the option to turn down operating rates waste or storing material long-term, providing they can absorb the cost of storage, waste always will continue entering the system.

Demand from the packaging sector has, so far, remained robust despite the economic slowdown.

Nevertheless, there has been talk among several downstream sellers that some fast-moving consumer goods (FMCG) producers are beginning to reassess their sustainability commitments considering the growing spread in prices with virgin product and amid recessionary concerns.

With fundamentals pulling in different directions, forward planning remains a core challenge for the European recycled polyolefins sector, and 2023 volume framework discussions are expected to be protracted as a result.

The K Plastics Fair runs on 19-26 October in Dusseldorf, Germany.

Front page picture: One of the halls at Dusseldorf’s convention centre in the 2019 edition of K Fair
Source: Messe Dusseldorf 

Focus article by Mark Victory