The only current certainty for the European recycling chain is uncertainty. Uncertainty typically leads to nervousness, which in turn leads to volatility, as markets react to each fluctuation in underlying conditions to a degree they wouldn’t normally.
On the one hand, macroeconomic conditions are weak and there is a growing threat of recession across Europe. Demand from non-packaging grades has fallen sharply since September across all recycled polymers – particularly demand from the key construction sector.
High energy costs also bring the risk of potential bankruptcies in the chain, which would make sustainability targets increasingly even harder to achieve, as industry association Packaging Recyclers Europe (PRE) warned on 22 September.
The recycling industry typically operates on narrow margins and on smaller cash reserves, placing companies at greater risk of bankruptcy in any sustained downturn. Currently, the market is faced with the specter of high costs and falling demand.
Comparatively low virgin values – particularly for off-spec material - have also been encouraging a shift away from recycled materials in non-packaging grades – which typically work on a cost saving basis – while high energy costs have limited recyclers’ ability to further reduce flake and pellet prices without risking negative margins.
Geopolitical shifts remain unpredictable given the ongoing conflict in Ukraine. Energy prices also remain difficult to forecast.
On the other hand, sustainability commitments from the packaging sector remain high, and there has been no significant slowdown in consumption from packaging – for the time being.
The gap between fast moving consumer goods (FMCG) sustainability commitments – many of which are due to mature in 2025 – and available supply has seen recycled polymer markets decouple from virgin price movements and macroeconomic conditions in all packaging-dominated grades over the past few years.
Structural shortages are likely to become even more endemic if negative macroeconomic conditions persist – which appears likely – because this has the potential to lead to greater hesitancy in investment throughout the chain from waste management, through sorting, and for both mechanical recycling and emerging technologies such as chemical recycling.
So far, investment in chemical recycling from institutional investors has shown little sign of slowing despite the negative macroeconomic storm-clouds seen in the second-half of 2022.
In part, this is because pyrolysis-based players – currently the leading form of chemical recycling in Europe – can generate electricity as part of the process, although for PET chemical recycling processes electricity costs this is not generally possible.
Nevertheless, even for pyrolysis, electricity costs remain a potential challenge – depending on set-up – and particularly in the initial months of operation when throughput is limited. Some players have speculated that this could also lead to delays in plant start-ups, as players await more favourable energy costs
As a result, the sector is facing additional unexpected cost burdens that may result in additional funding requirements.
At present, pyrolysis is the dominant form of chemical recycling in Europe, although much of the existing capacity remains pre-commercial. Waste managers remain concerned over a growing disconnect between available waste material with high enough quality for pyrolysis-based chemical recyclers and announced future capacity.
Some players expect advances in mechanical recycling sorting technology and number of sorting stages to lead to reductions in reject volumes and non-mechanically recycled waste available for chemical recycling.
Pyrolysis typically requires the minimisation of chlorine content (typically to 0.1% or less) due to its corrosive effect, the removal of polyethylene terephthalate (PET) because it oxygenates the process and does not depolymerise using pyrolysis, and the avoidance of nylon and flame retardants.
There has also been speculation that lack of sufficient feedstock availability in the mid-term could increasingly place chemical recyclers in competition with mechanical recyclers – something that chemical recyclers have generally been keen to avoid historically, both from an economical perspective and environmental impact perspective.
Chemical recycling typically has a higher production cost than mechanical recycling, although this could change with economies of scale and the gap between the two has narrowed for some pyrolysis-based processes because pyrolysis can – depending on set-up – generate its own electricity to partially off-set rising energy costs, while mechanical recyclers cannot. Although there remains an absence of independent, directly comparable life cycle analyses (LCAs), chemical recycling is broadly seen as having a higher environmental impact than mechanical recycling.
Coupled with this, the narrow geographical spread of new plant locations could intensify competition between chemical recyclers chasing the same pool of local waste volumes.
The first half of 2022 saw many chemical recyclers pushed out of the mixed polyolefins waste sector, because of increased captive use by waste managers, and material being contracted by mechanical recyclers due to shortages of monomaterials. The influx of mechanical recycling demand pushed mixed polyolefin prices to record highs during the first half of 2022, and saw chemical recyclers increasingly look to source other grades of material such as refuse derived fuel (RDF).
Chemical recyclers require RDF bales with high plastic content – typically more than 90% plastic content – while demand from the burn for energy sector has led to increased biomass in RDF bales. As a result, the market for RDF has fractured into multiple grades.
RDF with higher biomass, that typically serve traditional burn-for-energy applications such as cement and lime, and unsorted bales, which typically serve burn-for-energy units which have sorting-centres attached, continue to trade at negative values, with buyers paid to remove waste based on saving for the waste manager against alternative disposal costs.
RDF with high plastic content, suitable for recycling, meanwhile, has been trading at positive values throughout 2022. Prior to Q4 2021, this material had always traded at negative values.
Since July, monomaterial availability has been lengthening due to macroeconomic bearishness, particularly in non-packaging grades, and there has been downward pressure in the market, with the low-end of high-density polyethylene and polypropylene bale prices falling substantially since the start of the third quarter. As monomaterial prices have fallen, mixed polyolefin bales have also seen downward pressure – and mechanical recyclers have increasingly moved to the sidelines, with discretionary demand minimal.
Nevertheless, with monomaterials in tight supply throughout the second half of 2021 and first half of 2022, many players in non-packaging sectors turned to mixed polyolefins to try to bridge shortfalls of monomaterials, with multiple players signing volume framework agreements, which has, to an extent, counterbalanced the falls in ad hoc activity. 2022 has also seen increased captive use by waste managers following the onboarding of sorting capacity in the first half of 2022, which has left more limited volumes of mixed polyolefins on the market.
As increasing amounts of pyrolysis-oil comes onstream, many players are predicting that shortages of sufficient quality mixed plastic waste bales to deliver a high yield from chemical recycling routes will become endemic.
This has pushed access to waste up the agenda for many in the market and has seen recent moves such as LyondellBasell’s joint venture with 23 Oaks Investment to build a new waste sorting plant to feed its planned Wesseling pyrolysis-based chemical recycling plant.
icis.com: Mark Victory, Helen McGeough.