Recycling interest rises but R-PET supply is short
In the most memorable line from the 1987 film Wall Street, high-powered broker Gordon Gekko declares that “greed is good.” Demand trends in the recycled polyethylene terephthalate (R-PET) market suggest that large
corporations think that Gekko was off by just one letter: the current mantra seems to be “green is good.”
European R-PET demand has been growing at around 10%/year for the past four years, according to market estimates. Some players were forecasting growth in 2011 of as high as 25%, because of an increased focus on sustainability measures at large corporations.
“It’s [R-PET] been growing at about 10%. 2011 could be more than that, based on the number of corporate institutions looking to increase their R-PET percentages. Growth in 2011 could be 20-25%,” an R-PET food grade pellet producer said.
It is the bottle-to-bottle recycling market that is making the most aggressive inroads into the R-PET industry, sources say. A good example of this is drinks manufacturer Coca-Cola, which is targeting 25% R-PET content in all of its European bottles by 2012.
As part of this target, Coca-Cola Enterprises has entered into a joint-venture with UK-based bottle recycling firm Eco Plastics to develop a new purpose-built recycling facility in Lincolnshire.
The plant, to be built on Eco Plastics’ current site, will increase the UK’s recycled polyethylene terephthalate (R-PET) food-grade pellet capacity from 35,000 tonnes/year to 75,000 tonnes/year when it is fully operational, which is expected in 2012, said Coca-Cola. An exact start-up date has yet to be confirmed.
Coca-Cola is investing £5m (€5.8m, $8.2m) into the project, it said, while Eco Plastics is investing £10m to complete the funding.
Other bottling manufacturers are also increasing R-PET content targets.
R-PET producers say the joint venture is a clear signal by the bottling industry that bottlers intend to aggressively enter the R-PET market.
“It will impact the wider European [R-PET] market. It sends a message that the big drinks players are dead serious about the bottle-to-bottle market,” a major flake manufacturer said.
Bottle-to-bottle packaging is not the only growth area for R-PET. Automotive demand is increasing as car manufacturers look to secure greater volumes of mixed colored R-PET flakes – used in car interiors – because of costs and for their environmental image, according to industry sources.
“The customers have got used to R-PET now and they want to increase their content,” says one an R-PET food-grade pellet producer.
There is, however, a problem with growth. In order to reuse material, you have to have the used material in the first place. Collection rates at curb-side recycling facilities are currently below demand and the R-PET market is in extremely tight supply.
“We could sell 30% more than we have,” an R-PET food-grade pellet producer says.
Post-consumer polyethylene terephthalate (PET) bottles are the feedstock for the R-PET chain, which are reprocessed in to colorless and mixed colored R-PET flakes. These are used in the automotive sector, textiles, sheeting and strapping applications, and in food-grade pellets, which are then turned into food packaging and incorporated back into plastic bottles.
Post-consumer bottles are reliant on curb-side collection rates of used PET material. Although reprocessing capacities have increased in the past two years, collection rates have been broadly static.
There is a further issue: the weight of virgin plastic bottles was reduced by roughly 25% in 2009, and there is further “lightweighting” expected in 2011. This means that an increased number of post-consumer plastic bottles need to be collected to produce the same tonnage of recycled material.
The availability of R-PET was low through most of 2010 and supply has been tight throughout 2011. Supply is predicted to remain limited during the second quarter of the year, with forecasts beyond this impossible to make.
As well as a growth in demand, seasonal factors tightening the supply of R-PET. Low temperatures in much of Europe during 2011 have limited post-consumer collection.
Cold weather limits collection rates, because bottled drinks are the major source of post-consumer R-PET material and fewer drinks are consumed in cold periods. Traditionally, collection rates remain limited until around May, when temperatures improve, but any improvement is dependent on weather patterns.
There have also been specific market conditions so far in 2011, which have boosted R-PET consumption beyond corporate social responsibility initiatives.
Rising prices and tight supply of virgin PET mean that players have been switching to R-PET as a lower-cost alternative. Operating rates at many European virgin PET plants were at 60-80% during March because of feedstock terephthalic acid (PTA) shortages, according to most players.
“Virgin [PET] is like gold. It’s destroying everything. It’s a difficult situation,” an R-PET flake buyer said.
There have been reports from other plastics markets such as that for polycarbonate (PC) that buyers are turning to alternatives for virgin PET, which could limit the amount of virgin PET entering the R-PET chain and further tighten supply. Coupled with this, low availability of cotton caused by flooding in Pakistan and Taiwan – which damaged crops in Q4 2010 – meant that synthetic fibers such as R-PET were being used as an alternative.
Many players view the R-PET market as structurally short. The current overcapacity of washing facilities at recycling reprocessors has been estimated by sources at around 15%. Nevertheless, the true extent of any structural shortages cannot be assessed until virgin PET availability improves and prices fall, as the substitution of virgin PET for R-PET is a key driver of current buying interest.
Investment in collection mechanisms was needed to meet recycling demand, according to market sources.
Nevertheless, a minority of players say political investment in R-PET is unlikely. Most post-consumer collection facilities in Europe are government-led, and collections for other recyclable materials, such as polyvinyl chloride (PVC) and polyethylene (PE), are much lower than for R-PET, and this is where the concentration of government money would go.
“If you look at the [post-consumer] collection rates across all plastics, there are comparatively high rates for PET, but not the other plastics. At a political level, they’ll want to even it out across the plastics,” a major European flake producer said.
There are fears that new reprocessing capacity will lead to a struggle between the bottling industry and traditional R-PET players over material. This could lead to a price war, they add, as buyers outbid each other to secure volumes.
Players are also skeptical that the reprocessing capacity would help companies to achieve sustainability objectives, and have said that the difficulty has been in securing post-consumer bottles, not reprocessing facilities.
“It’s absolutely crazy to increase recycling processing facilities. The problem isn’t getting access to the recyclers, but to have access to the [post-consumer] bottles is the problem,” an R-PET flake buyer said.
The tight supply and strong demand has driven R-PET prices to record-high levels across all grades.
Post-consumer bottle prices are at record highs of €600-800/tonne FD (free delivered) NWE (northwest Europe) ($845-985/tonne)for colorless and €400-500/tonne for mixed colored. Post-consumer bottle prices have been at record highs since January 31. The previous record high for colorless bottles was €600/tonne, first seen from July 26-August 23, 2010.
Flake prices are also at record levels of €1,200-1,360/tonne FD NWE for colorless and €1,000-1,200/tonne for mixed colored.
The previous record high of €1,100/tonne for colored flakes, first established between June 28 and August 16, 2010, was equaled on January 17, 2011. There have been further price rises ever since.
Mixed colored flake prices first established a new record on January 24, when values hit a top end of €950/tonne FD NWE. The previous record high was €910/tonne from July 12 to August 23, 2010.
Meanwhile, food-grade pellet prices are reported at €1,600-1,650/tonne FD NWE. The previous record high for food-grade pellets was €1,300/tonne, seen from July 12-August 23 last year.
ICIS records for R-PET prices began on June 19, 2006.
The R-PET market is highly regionalized at present. The highest prices are seen in Italy, because the March monthly tender at Italian post-consumer collector Corepla for colorless bottles settled at an average of €750/tonne ex-works – comparatively high versus the rest of Europe – which was increasing prices in the country throughout the chain.
Interest in green initiatives is at an all-time high – particularly among large corporations. But limited collection rates and tight supply is a major barrier to growth. Green might be good, but it’s also problematic.
Source : www.icis.com