‘Concerns over the long-term impact of the coronavirus outbreak on key European recycling markets sharply escalated this week following the adoption of further containment measures across the continent,’ according to Mark Victory of Independent Commodity Intelligent Services.
The coronavirus has had a major impact on petrochemicals, hindering global supply chains, changing consumer demand patterns and prompting wide swings in the markets. At the same time, the cost of crude oil has plunged in the wake of the ongoing price war between Saudi Arabia and Russia and this is being felt in virgin plastics markets across Europe.
‘Until recently, concerns in the recycling industry had only been limited to the impact on virgin prices and individual customer relationships in countries such as Italy,’ Victory observes. ‘Recycling markets have largely been trading normally, albeit with some additional buyer caution. This, however, is beginning to shift.’
Sources in the recycled polyethylene terephthalate (rPET) market – the most widely recycled plastic across Europe – are already seeing a change in consumer behaviour, particularly around buying habits and, more importantly, recycling habits.
‘People are buying bottled water but they don’t bring the bottles back, they store them,’ a German recycler has pointed out. Demand for virgin PET has increased significantly during March as Europeans panic buy food and other necessities. While purchasing overall has increased significantly, a large group of consumers has switched from plastic packaging to glass.
Recyclers in Germany, which has one of the most successful deposit return schemes in Europe, are waiting to find out how damaging social distancing and self-isolation will be. As people stay in more, less recycled PET from on-the-go purchases will be available. Some industry players also think the coronavirus may cause more people to switch back to tap water.
A similar trend of reduced collection rates is expected in other key recycled polymer sectors such as polyethylene and polypropylene. ‘We anticipate we will have less material coming in to our plants in the coming weeks,’ say recycling players in France.
Any shortages are likely to be felt during what would typically be the beginning of the peak season for rPET and recycled polyolefins. ‘Due to demand uncertainty, it is unlikely that the 2020 peak season will be typical,’ Victory believes.
Key end-use markets for recycled polyolefins include automotive, construction, bin bags, outdoor furniture and packaging. ‘Automotive demand has already fallen sharply because of the outbreak and it is likely to decline further after temporary closures at automotive manufacturers across Europe,’ the market analyst points out.
The construction industry is more protected from any direct impact but it is likely to be heavily affected by any resulting economic downturn. In contrast, packaging demand is expected to soar. ‘Buyers driven by hygiene concerns are expected to favour plastic-wrapped food,’ Victory explains. ‘Nevertheless, the extent to which this will benefit the recycling industry remains unclear.’
There are also concerns about staff shortages as the pandemic gathers pace and particularly the cash flow of smaller recyclers unable to operate for a sustained period of time. Cash reserves at recyclers are typically low compared with the petrochemicals industry.
Of wider concern is the impact on logistics. Several countries across Europe have closed their borders and restricted the movement of goods and people. For now, transport seems to be fairly stable but the question remains: what will happen tomorrow?
‘Logistics is very painful at the moment in Europe, for virtually all products and all materials,’ says a flake producer in central Europe. ‘We don’t know what it’ll mean in the end as it’ll impact the use of products. Some people are already building up inventories to manage any potential disruption.’
Ongoing uncertainty over the different responses of European governments has further obscured the demand picture. While some companies are stockpiling, others are avoiding new orders.
More capacity, more investments
‘Investment across both mechanical and chemical recycling is vital if the industry is to meet ambitious legislative and brand targets for packaging recycling,’ Victory insists. He notes there is currently a severe shortage of food-grade material across all recycled polymers – both on the collection and reprocessing side. Reprocessing capacity for food-grade approved rPET pellets stands at 300 000 tonnes per year. It is around 100 000 tonnes per year for recycled HDPE.
Establishing innovative recycling technologies and new collection methods is fundamental in order to increase reprocessing capacity. However, this requires investment. ‘Given the scale of social distancing measures necessary for the containment of the pandemic, a global recession is looking increasingly likely,’ Victory argues.
‘For the time being, the majority of the European recycling industry continues to operate on a business-as-usual basis. But the consequences may be felt for many years to come.’