Coronavirus and Crude: The impact on recycled plastic prices Matt Tudball, Senior Editor, Recycling, ICIS
Pre-Coronavirus upstream markets – driven by crude 2
Outlook 2020 – what ICIS said • PET – “Choosing what is most likely to test the PET industry in Europe may lead to a resounding " War on Plastic !", but the challenges are many and overcoming them will not be easy.” • PET – “A conversation without the mention of Brexit or the US-China trade war is rare these days, because nobody really has an answer to the dilemmas the industry faces” • PE – “European PE has been in the grip of a new swathe of imports at the end of 2019, and the impact of the new plants, and more to come, is expected to also resonate throughout 2020.” • PP - “several sources see the current situation as the bottom of a normal cycle that will at some point pick up…most sources expect a slower year in 2020, but not a disastrous year ” • R-PP - demand will substantially increase on the back of rising interest from the automotive, packaging, white goods and flower pot sectors • R-PE – “demand from the packaging industry is expected to increase – as it has throughout 2019 – amid the ongoing consumer and regulatory backlash against single- use plastic ” • MEG - “anything between horrible and dreadful ” for 2020 3
What caused the 2020 crude crash? • Lockdowns caused drop in overall oil demand • Reduction in flights, road transport etc, required less oil • OPEC+ production cuts not enacted until May, creating over-supply • US storage close to capacity, traders keen to sell rather than store • US WTI traded -$37/63/bbl on 20 April 4
Coronavirus impacts seasonal R-PET demand 5
Lockdowns, social distancing impact recycled markets 6
Low crude, PET prices increased R-PET spread over virgin • R-PET flake, FGP now decoupled from virgin • Pressure from PET having major short-term impact on R-PET demand • Sustainability goals supporting high R-PET prices • R-PET players do not expect much change for rest of 2020 7
R-PE, R-PP price spreads over virgin 8
Conclusions • Crude prices will determine direction of virgin material, which will impact recycled markets • Lower virgin prices will impact recycled demand in the short-term because of substitution • Recycled prices now decoupled from virgin • Sustainability targets are continuing to support some grades of recycled material because of long-term contracts and concerns over security of supply 9
How COVID-19 Is Reshaping Recycling Supply/Demand Fundamentals Mark Victory, Senior Editor, Recycling, ICIS
The Market Pre-Coronavirus • Sustainability targets gathering pace Polymer Approx availability • Consumer and regulatory pressure R-HDPE 100,000 tonnes/year high R-LDPE X • Slew of regulatory announcements in R-Nylon X Italy, France, the UK R-PET 300,000 tonnes/year • Shortage of EFSA approved food- grade material across Europe R-PP X R-PS X R-PVC X R-PMMA X 11
The Development Of A Two-Tier Market 12
Intensifying Since H2 2019 13
Margins for Packaging Grades Rise 14
While Margins for Non- Packaging Grades Fall… 15
The Impact of Coronavirus on Supply and Demand • Players substitute to virgin on price, security of supply, and ease of use • Packaging demand falls 20-30% in April y-o-y across recycled polymers • Non-packaging demand falls even more sharply • R-PP demand falls 50% • Collection in France and UK limited, but counterbalanced by consumption • Projects delayed as players unwilling to take risks on new suppliers • Buyers defer sustainability targets because public and regulatory attention is elsewhere 16
Underlying Growth • Expected growth in maturing markets fails to emerge, changing fundamental investment assumptions • Consumer demand difficult to predict • Risk of sustained recession adding further supply chain stressors • Plant completion times extended 17
The Result Has Been Falling Margins Across Most Grades 18
Including The More Embedded R- PET Market 19
Pressure On Already Struggling Markets Intensifies 20
And Nascent Markets Start To Struggle 21
Short-term Supply and Demand Restores more traditional trading patterns • Most grades falling in less established markets • Some packaging grades falling more sharply • R-PET food grade pellet prices fall for first time since Feb 2016 • Negative macroeconomics could mean lower municipality infrastructure investment • Underlying consumer pressure dormant but not dissipated • Players move away from monthly/quarterly pricing on increased uncertainty 22
Impact on Investment • Investment decisions delayed • Increases likelihood targets will be missed • Limited cashflow and bank refinancing add insolvency risk 23
Mid-term Supply and Demand Divide Intensifies • Longer-tail for automotive/construction demand return embeds two-tier market • Lack of investment/delayed start-ups intensifies the demand short-falls for high- quality material • Negative macroeconomics could mean lower municipality infrastructure investment • Underlying consumer pressure dormant but not dissipated 24
Longer term Supply/Demand Imbalance Builds • FMCGs remain committed to recycling targets • No regulation abandoned, though some pushed back • ‘Social taxes’ such as plastic taxes and extended producer responsibility more likely in post-COVID-19 reconstruction • Lack of underlying growth heightens existing supply shortages • Competition for material increases 25
Sustainability – can recycled plastics survive the waves of volatility? ICIS Webinar - 10 June 2020 Helen McGeough, Senior Analyst and Global Analyst Lead for Recycled Plastics
Potential uncontrollable factors impacting recycled materials Influencing factors are both domestic and global Upstream Macroeconomics Consumers Regulation Innovation Unexpected Crude oil, force Political situation, Fads, consumer Legislation, Green New materials, Natural disasters, majures recession, trade preferences, deal, bans, trade packaging, coronavirus ‘extinction wars, major global flows, compliance, processes rebellion’ events taxation
Plastic panic Decades after it became part of the fabric of our lives, a worldwide revolt against plastic is under way ‘ The Guardian, Nov 2018 ’ Date 28
Impact of consumer pressure 150 • EU responds in record time with legislation (SUPD) • Supermarkets demand recycled material included in all Food and food packaging packaging producers are signatories to EMF Global Commitment • Global brands sign Ellen MacArthur Foundation pledge • Brand pledges go beyond regulatory requirements 50% Average recycled content pledged by major drinks brands by 2030 Date Presentation title 29
Legislation driving change in the plastics industry Recycling targets in Europe 2020 2021 2025 2029 2030 2035 Municipal waste recovery for 50% 55% 65% reuse Plastic waste recyclability 100% Plastic waste recycled 55% Plastic bottles collection 77% 90% Mandatory recycled content in PET bottles (2025) / in 25% 30% plastic bottles (2030) Single-use plastics ban (*) 100% (*) Single-use plastic cutlery, plates, straws; cotton bud sticks made of plastic; plastic balloon sticks; EPS cups; plastic bottles Date Presentation title 30
Influence of brands Pushing recycled content beyond mandated levels Raising quality expectations for recycled products Driving prices upwards for supply constrained recyclate Unbalancing markets as demand outstrips supply Presentation title 31
Date commitments Market drivers differ, but similar pressure on sustainability EUR/t 1000 1100 1200 1300 1400 1500 600 700 800 900 09-Jan-2015 27-Mar-2015 12-Jun-2015 28-Aug-2015 Price relationship - VPET and FG RPET Price relationship - VPET and RPET Food Grade Pellet RPET Pellets, Food Grade FD NWE Spot PET Bottle Grade FD Europe 13-Nov-2015 05-Feb-2016 22-Apr-2016 08-Jul-2016 23-Sep-2016 09-Dec-2016 10-Mar-2017 26-May-2017 11-Aug-2017 27-Oct-2017 19-Jan-2018 06-Apr-2018 22-Jun-2018 07-Sep-2018 23-Nov-2018 15-Feb-2019 03-May-2019 19-Jul-2019 04-Oct-2019 20-Dec-2019 06-Mar-2020 22-May-2020 0% 50% 100% 150% 200% 250% Price relationship virgin to FG RPET % Presentation title EUR/t 1000 1100 1200 1300 1400 1500 600 700 800 900 Price relationship - VPET and colourless RPET flake 09-Jan-2015 03-Apr-2015 26-Jun-2015 18-Sep-2015 Price relationship - VPET and RPET Flake Colourless RPET Flake, Hot-Washed, Colourless FD NWE Spot PET Bottle Grade FD Europe 11-Dec-2015 11-Mar-2016 03-Jun-2016 26-Aug-2016 18-Nov-2016 24-Feb-2017 19-May-2017 11-Aug-2017 03-Nov-2017 02-Feb-2018 27-Apr-2018 20-Jul-2018 12-Oct-2018 11-Jan-2019 05-Apr-2019 28-Jun-2019 20-Sep-2019 13-Dec-2019 06-Mar-2020 29-May-2020 0% 20% 40% 60% 80% 100% 120% 140% Price relationship virgin to RPET flake % 32
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