INSIGHT: Recycled PET prices trending down amid weak US demand

HOUSTON (ICIS)–Demand for recycled polyethylene terephthalate (R-PET) is expected to remain moderate to soft in 2023 despite long-term recycled content goals, resulting in potential downward price pressure in the United States.

To understand the US R-PET market, one must look at the basics of each major price driver including supply, demand production costs and quality.

In terms of R-PET supply, the ICIS Mechanical Recycling Supply Tracker identifies nearly 120 mechanical recycling sites in the US with a total R-PET capacity of 1.9m  tonnes in 2022.

Approximately 80% of the US R-PET capacity comes from post-consumer sources, primarily post-consumer bottles, while the remaining 20% is originated from post-industrial feedstocks. Ten states in the US have bottle bill programmes, also called deposit return schemes (DRS), to encourage container recycling.

In addition, nearly 50% of the US R-PET capacity is food grade, which is a requirement for recycled resins to be used in new beverage containers.

US R-PET mechanical recyclers footprintSource: ICIS, Recycling Supply Tracker – Mechanical, 2023

Evolving state regulations and voluntary brand-owner pledges to increase the use of recycled material are the main sustainability related demand drivers in the US in the long term.

California’s minimum recycled content mandate for plastic beverage containers came into effect on 1 January 2022. Washington State and New Jersey have passed similar bills with recycled content mandates that start in 2023 and 2024, respectively, and include more product categories such as non-beverage containers, plastic carryout bags, and trash bags.

Maine also passed a law requiring recycled content for plastic beverage containers starting in 2026.

Despite future requirements to use increasing amounts of recycled plastic, current R-PET supply is healthy, borderline in excess, to meet today’s demand.

From bottle to pellet, recycling costs include feedstock costs as well as other production costs. The key difference between the recycled and virgin resin markets is feedstock source, as the recycling industry uses plastic waste – a volatile material in terms of quality, availability, and price. Furthermore, recycling production costs have risen in tandem with higher labour and electricity costs, and higher financing rates across the nation.

For recyclers, the challenge is to remain viable as a business, but also competitive to virgin resin prices to compete with some customer bases, which can cannibalise margins or flat out lead to production losses.

The quality of recycled resins influences both demand and price, according to their performance, colour, and end-markets.

The US market has traditionally used bottle flake most significantly in fibre applications, but the bottle-to-bottle market has grown strongly in recent years, given the sustainability agenda for fast-moving consumer goods (FMCGs).

The demand for closed loop recycling, in a food contact application, also drives up the quality requirements in feedstock and recycle product. This increases prices for the highest quality clear PET bales as well as create the premium for food grade R-PET.

ECONOMIC CONDITIONS WEAKEN DEMAND
US R-PET demand traditionally was dominated by the fibre industry, but due to current economic headwinds related to fibre products such as textiles or carpet, end market demand has been weak throughout 2023.

Demand from the consumer goods companies, including bottled beverage producers, is currently flat despite long-term recycled content goals.

While some consumer goods companies continue to purchase R-PET to meet their voluntary or regulatory targets for recycled content, the current economic headwinds have influenced other buyers to delay or limit orders of higher-cost recycled resins.

The prices of virgin resin still have an influence on the demand for recycled materials for cost-sensitive buyers.

When the delta between virgin and recycled feedstocks expands, in favour of virgin as the lower cost feedstock, buyers can be drawn towards a higher mix of virgin resin. This has been very evident in the market this year, as the economically incentivized client has shifted the focus to managing costs rather than driving plastics circularity.

The combined market conditions have resulted in downward price pressure in the US for most recycled resin grades. For instance, according to Emily Friedman, Recycled Plastics Senior Editor at ICIS, “spot market colourless post-consumer R-PET flake and pellet prices have dropped across the US, reflecting continued demand weakness paired with pressure from competitive import cargoes”.

In the next couple of months, R-PET demand is expected to remain soft, despite historical expectation of peak bottled beverage demand during summer season.

Although sustainability-driven buyers are expected to maintain demand for US R-PET consistently, cost-driven buyers may switch back to higher volumes of virgin PET in their feedstock mix, especially as virgin PET prices drop due to ongoing destocking in the United States.

In the next couple years, the market is expected to recover in preparation for the regulatory and voluntary recycled content targets. The return of demand is expected to put upwards pressure on R-PET supply and, therefore, prices in the near term, until there is substantial expansion in supply.

Insight by Paula Leardini