Original by Dr. Steve Wong
June 29, 2023
According to the OPIS report released in mid-June, the raw material price of LDPE (polyethylene) prime dropped to 32 cents US/pound or equivalent to USD705/ton, whereas PP (polypropylene) dropped to 35 cents US/pound, equal to USD770/ton. Prices for other prime materials are no exception and follow the same downtrend. After considering inflation, prices are at new lows or close to historical lows. This situation is very shocking and has a serious impact on the recycling industry. The total cost of recycled pellets is much higher than that of prime materials, which has led to reduced use or avoidance of recycled materials by product manufacturers or brand owners for obvious reasons. This has caused many recycling factories in Asia to operate at a loss or suspend operations. Due to the lack of economic value, waste plastics collected from municipalities are being sent to landfills, resulting in environmental pollution.
The situation is similar in Europe and other countries. The prices of local virgin materials in Europe have been declining due to the low-price impacts of imported materials. Prices of scrap materials have also been declining, with some scrap materials now only worth one-third of what they were during the COVID period. I recently visited customers in Turkey and found it difficult to close a deal. After the recent election, Turkey’s economic policy remains uncertain, and exchange rates are volatile. As a result, customers are reluctant to enter into contracts hastily. In Hong Kong, recycling companies are not willing to collect PET bottles, possibly due to high operational costs but low selling prices.
In summary, the main reasons for this downward trend are as follows:
- Supply chain disruptions during the COVID period, including abnormal transportation and logistics costs, led to increased prices for plastic materials as manufacturers overbought. After the epidemic eased, prices started to fall continuously, resulting in an overselling situation.
- Sliding market demand due to inflation, interest rate hikes, the energy crisis in Europe, and geopolitical factors have caused uncertainty in the industry. Market participants are hesitant to enter the market without clarity about the future.
- China, the largest producer of plastics, has opened up its petrochemical industry to the private sector, allowing many newcomers to double their production capacities with advanced technologies. The increased overall industry output by more than 30% due to new production lines has contributed to the oversupply.
Currently, the global sales of plastics stand at 400 million tons, with an estimated annual growth rate of five percent. However, this figure is subject to doubt due to the following factors:
- Many countries are promoting the reduction or banning of single-use plastic materials.
- The use of recycled materials is gradually increasing, with some countries requiring a minimum of 25% recycled content in production.
- New technologies that help reduce costs have resulted in the elimination of old factories as mass production by new facilities takes precedence. Some old factories are running at a loss but continue production, only ceasing operations after a life-and-death struggle.
Therefore, a short-term upturn in plastic material prices is not expected. The most optimistic scenario would be to see prices stabilize after the summer holidays.