Yearly average Europe R-HDPE spreads suggest squeezed margins for pipe-grade producers

LONDON (ICIS)–Yearly average Europe recycled high density polyethylene (R-HDPE) pipe-grade black pellet prices in 2024 to date are at their lowest level since 2020.

2024 prices to date are the second-lowest yearly average price on record, behind 2020.

These prices are a result of the cost-of-living crisis muting construction demand and driving oversupply across the market over the past 18 months. The yearly average price in 2023 was just €50/tonne above its current level.

Yearly average pipe-grade black pellet price

Year	Average price (€/tonne)
2019 (price series began in May)	843
2020	696
2021	1,009
2022	1,267
2023	850
2024 (to date)	800

Producers of pipe-grade black pellets have been complaining of squeezed margins since early 2023, something which is borne out by examining average prices.

The yearly average spread between mixed-coloured bale feedstock values (see bale section) and pipe-grade pellets is also at its lowest since 2020, and its second lowest on record.

Yearly average spread mixed-coloured bale vs pipe-grade black pellet

Year	Average spread (€/tonne)
2019 (price series began in May)	537
2020	524
2021	597
2022	717
2023	543
2024 (to date)	533

Nevertheless, this doesn’t show the full picture since energy and labour costs remain considerably higher than they were in 2020 due to inflationary pressures.

Coupled with this, the above chart does not factor in wastage rates, which are at least 25% and often higher. What this means is that at a 25% wastage rate, you’d need to input 1.25 tonnes of feedstock waste – increasing the cost base. Adjusting the spreads to account for a 25% wastage rate shows that the average spread in both 2023 and 2024 to date were identical, and that both are the lowest seen since 2019.

 Yearly average spread mixed-coloured bale vs pipe-grade black pellet (adjusted at 25% wastage rate)

Year	Average adjusted spread (€/tonne)
2019 (price series began in May)	460
2020	481
2021	494
2022	579.5
2023	466.25
2024 (to date)	466.25

Market players are becoming increasingly concerned over the demand outlook beyond Q2, due to a combination of mounting substitution pressure from virgin (particularly for non-packaging grades) and the approach of the summer lull.

Substitution pressure from virgin and off-spec material is likely to disproportionately impact on non-packaging grades, which typically purchase recycled material for cost-saving reasons.

Seasonal factors typically mean that pipe-grade pellet prices are typically stronger in the first half of the year than the second, with June representing the last month when prices are typically above the yearly average.

This is both due to construction activity typically being more limited in winter months when temperatures are colder, and the impact of typical convertor summer shutdowns for routine maintenance in July/August, followed by destocking in Q4 to lower working capital on year-end balance sheets.

During July and August, downstream convertors typically shut for several weeks of routine maintenance. Typically southern Europe shuts earlier than northern Europe, with the majority of northern Europe shutdowns occurring in August. There has been repeated talk in the past few weeks of German convertors shutting as early as late-June this year due to negative macroeconomic conditions in the country.

This price trend can be seen in the Seasonality Index chart below.

The seasonality index shows which months in the year prices are typically higher than average, and which months they are typically lower than average, and to what extent.

It reveals underlying trading patterns in markets beyond short-term supply/demand conditions. The average price is represented by 1.00. When the index is below 1.00 it means that prices are typically below average in that month, and when above 1.00 it means prices are typically above average in that month, with the distance from 1.00 showing the extent.

It is calculated by first dividing each monthly price by the average price for that year to give an index value. Then, all of those monthly index values are averaged to give a single value for each month. Those averaged monthly values are used to plot the seasonality index. The longer a price series has been running, the more accurate the seasonality index. ICIS began pricing R-HDPE bales in May 2019.

Focus article by Mark Victory