No peak season expected for Europe recycling markets in 2023

LONDON (ICIS)–There will be no peak season for demand across European recycled polymers sectors in 2023, multiple players in multiple markets have forecast in recent weeks.

This is due to a combination of:

• Bearish macroeconomic conditions blunting consumer purchasing power.
• Ongoing high costs chiefly linked to energy.
• Colder-than-average temperatures in the first half of 2023.
• Substitution to comparatively low-priced virgin and off-spec markets.

The most heavily impacted markets – from a demand point of view – have been non-packaging sectors including construction, outdoor furniture, horticulture and agriculture. Demand in these sectors fell by up to 50% in April and May year on year, and June is seeing a similar trend, according to market estimates. As a result, short-time working in countries that allow it and reduced operating rates remain prevalent.

Non-packaging sectors remain the dominate end-use markets for recycled polypropylene (R-PP), mixed-plastic waste and recycled polyethylene (R-PE). Narrow margins have led to ongoing talk of potential consolidation in the chain.

“Many recyclers are dependent on the peak season to optimise sales and margins opportunities, to balance their business through the low seasons. The absence of a peak season this year is creating much concern for recyclers and their ability to survive unscathed on many levels, including financially, through the remainder of the year – given the weak outlook for the majority of markets. There are longer-term questions around how the supply chain can rebound going into 2024 with the setbacks 2023 is anticipated to leave on the sector,” said Helen McGeough, Senior Analyst, Plastics Recycling, ICIS.

Demand remains weak due to ongoing substitution to virgin and off-spec material, and high inflation across much of Europe and the cost-of-living crisis reducing consumers’ discretionary spend.

There has been no sign of a pick-up in order book volumes moving into June, and with the summer months past approaching, some players are now not expecting a peak season to occur in 2023, and expecting that consumption could remain weak throughout the remainder of the year. This is because macroeconomic conditions remain bearish, and virgin markets remain under downward pressure.

Typically, convertors shut for several weeks of routine maintenance in July and August, and multiple players expect outages to be prolonged in 2023, with some expecting outages to begin as soon as June.

Bale markets typically lengthen during convertor shutdowns, because while convertors shut for maintenance, waste continues to enter the chain, and sorting and collection serves continue to operate.

While demand from packaging is proving more resilient than for non-packaging, it has still fallen year on year by 20-30%, according to market estimates.

The peak-season for the beverage markets – the key end-use sector for European recycled polyethylene terephthalate (R-PET), which is currently the largest recycled polymer market in Europe – typically runs from March-September and coincides with higher temperatures, which stimulate the consumption of bottled drinks.

Temperatures in much of Europe have been below average through much of H1 2023. Nevertheless, even in countries which have seen high temperatures – such as Spain – demand has been weak. In May and June to date, demand across packaging applications – both beverage and non-beverage – has fallen by 20-30% year on year, according to market estimates, with the beverage sector typically at the top end of that range.

Although packaging sectors are typically not as cost-sensitive as non-packaging due to ambitious sustainability targets, the wider macroeconomic malaise is currently trumping sustainability goals. Coupled with this, there is widespread talk that many consumers are switching to lower-cost beverage brands, which typically contain lower average recycled content levels.

Hotter weather in parts of Europe could lead to a temporary increase in consumption of polyethylene terephthalate (PET) bottles, which in turn could see volumes of bottle bales increase. This is a concern for some given the current low demand across the R-PET chain and could add further downward pressure on bale prices if demand does not improve significantly.

Some R-PET recyclers are separately reducing their production in June, while there was unconfirmed talk that some will close production lines altogether for two to three weeks because of weak demand.

Recycled polyolefin markets typically serve personal care, cosmetics and domestic goods packaging sectors – rather than the beverage industry ­- where demand tends to be more evenly spread through the year. Nevertheless, some grades of recycled low-density polyethylene (R-LDPE) are primarily used in shrink-hood secondary packaging applications in the beverage sector, and even in packaging applications where seasonality is less pronounced, consumption currently remains low.

Focus article by Mark Victory

Additional reporting by Matt Tudball

ICIS offers extensive and unrivalled coverage of recycled polymer markets, offering pricing services for R-PET, and R-PE globally, and recycled R-PP, and mixed plastic waste pricing in Europe. Additionally, ICIS offers global recycling supply trackers for both mechanical and chemical recycling and analytics for Europe R-PET including price forecast.