“We lost a whole lot of refining capacity during the pandemic, so supply will always be much tighter than it was before – there are some markets that have structurally just changed. And so maybe people are waiting for normal, and our forecasts will show that we don't expect it to be that way again. There is a new dynamic in the market.” - Michael Connolly, Principal Analyst, Refining, ICIS.
The chemicals market is undergoing a global, and ongoing, supply chain crisis. The question of whether the market will return to a familiar and efficient flow, and whether supply chains will resume their traditional shape, remains unforeseen and hard to predict. A further challenge to this, is the adjacent, long-term trend of sustainability, adding complexity to the balance of short- and long-term agendas: “Everyone's so busy fighting the fires of today that it's distracting them from that really long-term goal. This is the delaying the implementation of company initiatives.” Alex Lidback, VP Chemicals Analytics, ICIS.
The war in Ukraine has now added an extra layer of uncertainty to many markets, and the recycling sector has not been left untouched. “Recyclers were already facing a very uncertain outlook at the beginning of 2022, having faced higher production costs off the back of rising energy costs in 2021. Now, the war in Ukraine has compounded that, pushing energy and production costs up further, and adding in new elements such as Ukrainian and Polish drivers returning home. This alongside a rise in fuel prices, impacts delivery costs, on top of increases in the costs of polymer-based bags and wooden pallets used to transport material – it all adds up.” Matt Tudball, Senior Editor, Recycling.
In Europe the recycling and sustainability agenda has been building pace for some time. It is not just Europe, though, which is seeing a push towards sustainability, with pressure to increase recycled content increasingly globalized. In the US, California became the first US state to mandate a minimum recycled content in plastic bottles, at 15% annually, which is expected to increase to 50% by 2030. Other states are following suit, with polymer supply reaching a total of nearly 6.6m tonnes/year in 2021.
Regulation ensues
“Clearly, governments are under consumer pressure to take action, so we can expect a raft of regulations to come. Some forms will include financial penalties or obligations on the plastics supply chain, which let’s face it, post-pandemic budget constrained treasuries will welcome." - Helen McGeough, Senior Analyst and Team Lead Plastics Recycling, ICIS.
In regulation, the impact of the Paris climate accords are still being felt today. In the Netherlands, in May 2021, Shell became the first company to be legally obliged to align its policies with required emission levels. By 2030, the company was ordered to cut its CO2 emissions by 45% compared to their reported 2019 levels. This figure also includes Scope 3 emissions, which for Shell, extends to the individual emissions of customer cars.
While regulation will always play a part in shaping market dynamics, it’s important to recognise the validity of pressures originating from other, more voluntary industry efforts.
Drivers to sustainability - Key ambitions for achieving recyclability
- Up to an average of 30% recycled content adopted by end markets
- 100% recyclable/reusable plastic packaging set as European standard
Big fish in an even bigger pond
"We are only delaying the inevitable. The here and now is that there have been great disruptions in supply chains, and a genuine crisis from rising energy costs and cost of living due to inflation across markets. But it doesn't mean sustainability is going away, and quite the opposite. It is going to be integral to the survival of business in the future – dealing with day-to-day problems is all well and good, but we should always be looking forward." - Helen McGeough, Senior Analyst and Team Lead Plastics Recycling, ICIS.
The common, industry-wide issue is that there is far more plastic than the waste system can recycle.
“The biggest bottleneck, in any mechanical or chemical recycling, anywhere across the world, is investment in collection and sourcing capacity. There is simply not enough input material, and there also isn’t enough sorting capacity to separate out the good from the bad quality material. The industry can invest millions and millions in reprocessing capacity, but if they cannot get access to the waste, if they cannot get enough collection supply, then they won't ever hit their targets individually or on an industry-wide basis.” - Helen McGeough, Senior Analyst and Team Lead Plastics Recycling, ICIS.
The lack of material drove prices for some recycled plastics to record-high levels in the first half of 2022, and this did not go unnoticed elsewhere in the world. “Increasingly we saw non-EU actors looking to get a piece of the European market, attracted by the high prices as a result of strong demand in an under-supplied market,” Matt Tudball, Senior Editor, Recycling at ICIS. However, some European customers are deterred from purchasing imports from outside the region because of the long delivery time or lack of traceability – a key issue for many large packaging producers.
“ICIS’ regular coverage of the virgin and recycle markets have shown the trend for virgin resin prices trading below those for recycled polymer. With most packaging brands committed to recycled content targets higher than any mandate, especially the beverage sector using PET resin, the cost of sustainability can run high but the reputational risk of moving away from those pledges is even higher.” Matt Tudball, Senior Editor, Recycling at ICIS.
ICIS estimates that a CAGR (Compound Annual Growth Rate) of nearly 40% would be needed in order to achieve 25% of recycled content in packaging by 2025. Current forecast subscribers, click here to view the full insight.
Although short-term demand for recycled materials – particularly non-packaging grades – has fallen in the second half of 2022 amid the growing cost-of-living crisis, markets remain structurally short of what’s needed to meet ambitious sustainability targets in the mid-term.
“To tackle some of the structural shortages, petrochemical firms are increasingly looking to ensure access to sufficient quality waste feedstock supply, which remains the biggest bottle-neck to achieving sustainability targets across both mechanical and chemical recycling. Some petrochemical firms, have purchased waste management and recycling assets to get that access. Others have been entering in to strategic partnerships to try to source the material they need throughout the recycling chain,” Mark Victory, Senior Editor, Recycling said.
The ICIS mechanical and chemical recycling supply trackers support these objectives, providing information about installed capacity projects in recycling, and ICIS Insight and Analyse subscriptions, show current and forecasted prices on R-PET and multiple recycle commodities across the supply chain. Coupled with this, our expanding global recycled polymer pricing portfolio now offers benchmarkable prices for more than 80 different grades of recycled material at all stages of the chain from waste bales through to pellets, including global recycled polyethylene (R-PE) pricing, and recycled polypropylene (R-PP) and mixed plastic waste pricing in Europe. This information is vital for understanding what kind of investment opportunities could be upcoming, how to meet demand, and ultimately, the eventual impact on virgin polymers.
What is clear is that for chemicals producers, an integral part to this story is how to survive effectively in what is now, effectively a new climate. With the focus drawn to cost challenges, chemical players must strongly guard against the temptation to “delay the inevitable” of active participation in the sustainability agenda.
