ICIS launches US formula-based R-PET pellet pricing

HOUSTON (ICIS)–As the US recycled polyethylene terephthalate (R-PET) market continues to develop and new players establish supply relationships across members in the value chain, pricing mechanisms have shifted significantly over the course of the last 5+ years.

Historically, R-PET pricing was linked to virgin pricing, but at a deficit, meaning recycled resins were expected to be cheaper than virgin. Now, the tables have turned, particularly for sought after “sustainability-driven” grades of recycled resin which typically command a premium to virgin due to the tight supply and high demand of these higher quality, clear resins.

Pricing for these grades of recycled resins has shifted within the R-PET industry, such that pellet prices are largely based on their own feedstock and production costs.

While spot pellet pricing is subjected to the additional lens of local supply and demand, including substitution with imports or cheap virgin, contract pellet pricing is now largely based off of bale feedstock formulas, with some contracts specifying individual step inputs, and others specifying the bale index and then an adder to represent the processing cost.

Eventually, the market may move to a uniform indexed pellet price, settled on a routine frequency by the market, similar to how R-PET pricing is established in Europe, or how other commodity resin prices are established in the US, such as polyethylene (PE).

Within the ICIS US R-PET commodity services, two new price series have been introduced which represent food grade pellet pricing calculated via a formula, starting with bale feedstock costs.

While each contract will have unique formula inputs which are largely kept private, the following prices are meant as an indicator of average pellet pricing based on formula, as this can vary significantly from active spot market transactions – depending on the current market supply and demand.

There is one assessment for the East Coast and one for the West Coast based on various bale feedstocks.

The formula is listed below:
[([(Bale price indicator + bale freight ) ÷ bale yield] + bale to flake processing costs) ÷ flake yield] + flake to pellet processing costs = pellet price

Formula input descriptors:

• Bale price indicator: What quality (curbside or deposit) and region (East Coast vs West Coast) descriptors are used for selecting base pricing for bale feedstock costs in relation to the type most often used by local recyclers.
• Bale freight: Cost to transport material from bale producer (typically material recovery facility (MRF)) to bale buyer (typically the recycler/reclaimer).
• Bale yield: Factor to account for loss of material due to contamination within the bale; Curbside bales have higher contamination levels and thus lower yields.
• Bale to flake processing costs: Associated production costs from sorting, washing, grinding processes, including but not limited to facilities costs, utilities, labor, etc.
• Flake yield: Factor to account for loss of material due to contamination from flake to pellet stage.
• Flake to pellet processing costs: Associated production costs from pelletization, including but not limited to facilities costs, utilities, labor, etc.

The numeric input values were gathered from market participants, with median values used among responses. The inputs are subject to change pending further feedback or market cost changes, such as the recent inflation of production costs within the last ~2-4 years.

This price excludes delivery costs of the final pellet. This price also excludes explicit margin adders, though some processing costs may include inherit margin depending on the processing yield fluctuation.

For more information on these new series, or to share feedback, please contact Emily Friedman at Emily.friedman@icis.com.