Europe R-PE, R-PP summer shutdowns may be called off due to market tightness

Strong downstream demand and tight supply for recycled high density polyethylene (R-HDPE) and recycled polypropylene (R-PP) could limit traditional summer holiday shutdowns, predicted multiple market sources, according to Mark Victory, Senior Editor at Recycling, ICIS.

R-HDPE and R-PP recyclers and downstream convertors typically halt production during July and August to effect maintenance in what is traditionally the seasonal low of the market.

Nevertheless, strong downstream demand – particularly from the construction and packaging sectors – ongoing substitution of virgin material, and low stock levels throughout the chain has led to talk of scheduled outages being cancelled. Some players have predicted that demand could be up to 40% higher in August compared to a typical year.

Buying interest from the packaging sector has been increasing across 2021 due to the ongoing regulatory and consumer backlash against single-use plastics, as well as the onboarding of projects delayed in 2020 due to coronavirus.

Construction demand has been rising since the second half of 2020. This was initially due to consumers focusing on home improvements while coronavirus containment measures limited movements. In recent months, a shortage of available material in virgin markets has resulted in increased demand for R-HDPE and R-PP as buyers look to ensure enough supply to continue running plants – particularly from the construction sector, where shortages have led to delays to building project completions. Delays to building projects are expected to keep demand high during the summer months.

For both R-HDPE and R-PP, a lack of sufficient collection material has acted as a bottleneck for flake and pellet production as players are unable to source enough material to run at full rates. This is particularly true of R-PP.

Bale shortages are the result of a combination of increased demand from construction and packaging sectors and substitution of virgin;  lack of spare sorting capacity, particularly in France; higher volumes of mixed polyolefin bales being offered into the market at the expense of sorted bales due to a lack of spare sorting capacity, particularly in France; and the Covid-19 logistic disruption.

For R-PP bale availability has been additionally tightened by low vehicle replacement rates since the start of the COVID-19 pandemic limiting the supply of post-industrial bales. Prior to the COVID-19 pandemic, end of life vehicles were the largest single source of input material for the post-industrial supply chain, accounting for an estimated 25% market share.

While new vehicle registrations have been improving year-on-year, they remain significantly below pre-pandemic levels. April 2021 new passenger car registrations were 24.6% lower than April 2019, while April 2021 new commercial vehicle registrations were down 20.5% from April 2019, according to data from the European Automobile Manufacturers Association (ACEA).

For R-HDPE bale availability has been additionally tightened by less waste entering the chain due to a shift away from virgin HDPE packaging production in favour of polypropylene (PP) or polyethylene terephthalate (PET); and additional demand from Turkey for sorted bales, following a ban on mixed-waste imports that began in January and prior to the May ban on all HDPE waste imports.

Although some additional HDPE waste material has started to enter the post-consumer chain following the reopening of physical retail across much of Europe, and an import ban on polyethylene (PE) waste imports in to Turkey had been expected to increase availability due to reduced exports to the region, it remains tight, Victory said.  Coupled with this, several sources this week said that the impact of the Turkey ban may not be felt until after the summer months because players have been given 45 days to deliver any outstanding material.

Victory concludes that shortages are most acute in the R-PP material, with multiple players confirming that they have been unable to secure sufficient material in recent months to operate at full rates and to meet the strength of demand.

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