Strong regional currencies weigh on Asia recycling exports

SINGAPORE (ICIS)–The weakening of the US dollar against major currencies in Asia since August will continue to strain exports of recycled polyethylene terephthalate (R-PET), recycled polyethylene (R-PE), and recycled polypropylene (R-PP).

• Fewer September deals expected as buyers resist changes in currency conversion
• Importers of recycling feedstock benefit from weakening of US dollar
• Asian recyclers wary of interest cuts by the US Fed

Asian recyclers were largely relieved to see downward correction on container freight costs in August, but the ease in transportation costs were countered by foreign exchange fluctuations.

Exporters of recycled polymers from key markets such as Japan, Thailand, Indonesia and Malaysia have struggled to close deals for September loading.

Buyers were resisting the strengthening of major Asian currencies against the US dollar, resulting in an impasse in spot negotiations.

A strong currency makes exports less competitive as buyers continue to use the US dollar for transactions in both term and spot commitments.

As of 02:05 GMT, the Thai baht and the Indonesian rupiah registered the biggest month-on-month gains against the US dollar among four currencies of major Asian exporters.

Exchange rates versus $1

Currencies	6 Sept (As of 02:05 GMT)	% appreciation (month on month)
Japanese yen (Y)	143.29	2.5
Thai baht (Bt)	33.56	5.8
Indonesian rupiah (Rp)	15,389.10	4.6
Malaysian ringgit (M$)	4.34	3.4

Source: www.xe.com

Recyclers, on the other hand, have been unwilling to lower their prices amid high production costs and eroded margins.

Due to this, majority of recyclers in the region expect September spot negotiations to be lower than that of August.

“Our buyers [of R-PET flakes] within Asia were strongly resisting higher prices and they prefer to halt negotiations than to shoulder the foreign exchange fluctuations,” a Thailand-based R-PET producer said.

A few buyers hedging their exposure to foreign exchange volatility were still able to secure spot quantities, but majority of buyers are not hedged.

On the other hand, Asian recyclers which purchase US dollar-denominated feedstock benefited from the exchange rate fluctuations.

Asian recyclers expect export volumes to remain dampened and are concerned about interest rate cuts by the US Federal Reserve.

As regional recyclers continue to position themselves as net exporters of R-PET, R-PE and R-PP, currency fluctuations and decisions by the Federal Reserve retain great implications to overall trade from Asia.

Focus article by Arianne Perez

Thumbnail image: A 10,000-Japanese yen note and $1 US dollar notes, 3 July 2024. (Taidgh Barron/ZUMA Press Wire/Shutterstock)