covid-19 and recycling markets –what lies ahead? · pet bottle grade fd europe pet bottles,...

Helen McGeough– Senior Analyst, Plastic Recycling, ICISTam Nguyen– Head of Operations, GA CircularMalini Harihanan– Market Development Director APAC, ICIS

COVID-19 and recycling markets – What lies ahead?19 August 2020

Agenda

01 Sustainability – Can recycled plastics survive the waves of volatility?Helen McGeough– Senior Analyst, Plastic Recycling, ICIS

02 Safeguarding the Plastic Recycling Value Chain: Insights from South and Southeast AsiaTam Nguyen– Head of Operations, GA Circular

Sustainability – can recycled plastics survive the waves of volatility

ICIS Webinar – 19 August 2020Helen McGeough, Senior Analyst and Global Analyst Lead for Recycled Plastics

Uncontrollable factors impacting recycled materials

Influencing factors are both domestic and global

Crude oil, force majeures

Upstream

Political situation, recession, trade

wars, major global events

Macroeconomics

Fads, consumer preferences, ‘extinction rebellion’

Consumers

Legislation, Green deal, bans, trade

flows, compliance, taxation

Regulation

New materials, packaging, processes

Innovation

Natural disasters, coronavirus

Unexpected

Impact of consumer pressure

5

150Food and food packaging producers are signatories to EMF Global Commitment

50%Average recycled content pledged by major drinks brands by 2030

• EU responds in record time with legislation (SUPD)

• Supermarkets demand recycled material included in all packaging

• Global brands sign Ellen MacArthur Foundation pledge

• Brand pledges go beyond regulatory requirements

EU 2020 2021 2025 2029 2030 2035

Municipal waste recovery for reuse 50% 55% 65%

Plastic waste recyclability 100%

Plastic waste recycled 55%

Plastic bottles collection 77% 90%

Mandatory recycled content in PET bottles (2025) / in

plastic bottles (2030)25% 30%

Single-use plastics ban (*) 100%

Low crude, PET prices increased R-PET spread over virgin

6

• 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

Market drivers differ, but similar pressure on sustainability commitments

7

0%

20%

40%

60%

80%

100%

120%

140%

600

700

800

900

1000

1100

1200

1300

1400

1500

09

-Jan

-20

15

17

-Ap

r-2

01

5

24

-Ju

l-2

01

5

30

-Oct

-20

15

12

-Feb

-20

16

20

-May

-20

16

26

-Au

g-2

01

6

02

-Dec

-20

16

24

-Mar

-20

17

30

-Ju

n-2

01

7

06

-Oct

-20

17

19

-Jan

-20

18

27

-Ap

r-2

01

8

03

-Au

g-2

01

8

09

-No

v-2

018

22

-Feb

-20

19

31

-May

-20

19

06

-Sep

-20

19

13

-Dec

-20

19

20

-Mar

-20

20

23

-Ju

n-2

02

0 Pri

ce r

elat

ion

ship

vir

gin

to

RP

ET f

lake

%

EUR

/t

Price relationship - VPET and colourless RPET flake

PET Bottle Grade FD Europe

RPET Flake, Hot-Washed, Colourless FD NWE Spot

Price relationship - VPET and RPET Flake Colourless

0%

50%

100%

150%

200%

250%

600

700

800

900

1000

1100

1200

1300

1400

1500

09

-Jan

-20

15

17

-Ap

r-2

01

5

24

-Ju

l-2

01

5

30

-Oct

-20

15

12

-Feb

-20

16

20

-May

-20

16

26

-Au

g-2

01

6

02

-Dec

-20

16

24

-Mar

-20

17

30

-Ju

n-2

01

7

06

-Oct

-20

17

19

-Jan

-20

18

27

-Ap

r-2

01

8

03

-Au

g-2

01

8

09

-No

v-2

018

22

-Feb

-20

19

31

-May

-20

19

06

-Sep

-20

19

13

-Dec

-20

19

20

-Mar

-20

20

23

-Ju

n-2

02

0 Pri

ce r

elat

ion

ship

vir

gin

to

FG

RP

ET %

EUR

/t

Price relationship - VPET and FG RPET

PET Bottle Grade FD Europe

RPET Pellets, Food Grade FD NWE Spot

Price relationship - VPET and RPET Food Grade Pellet

Investment and commitment required for long term supply to be adequate for industry targets

8Date Presentation title

-200

0

200

400

600

800

1000

1200

1400

1600

07

-Mar

-20

14

25

-Ap

r-2

01

4

13

-Ju

n-2

01

4

01

-Au

g-2

01

4

19

-Se

p-2

01

4

07

-No

v-2

01

4

26

-Dec

-20

14

20

-Fe

b-2

01

5

10

-Ap

r-2

01

5

29

-May

-20

15

17

-Ju

l-2

01

5

04

-Se

p-2

01

5

23

-Oct

-20

15

11

-Dec

-20

15

05

-Fe

b-2

01

6

25

-Mar

-20

16

13

-May

-20

16

01

-Ju

l-2

01

6

19

-Au

g-2

01

6

07

-Oct

-20

16

25

-No

v-2

01

6

27

-Jan

-20

17

17

-Mar

-20

17

05

-May

-20

17

23

-Ju

n-2

01

7

11

-Au

g-2

01

7

29

-Se

p-2

01

7

17

-No

v-2

01

7

12

-Jan

-20

18

02

-Mar

-20

18

20

-Ap

r-2

01

8

08

-Ju

n-2

01

8

27

-Ju

l-2

01

8

14

-Se

p-2

01

8

02

-No

v-2

01

8

21

-Dec

-20

18

15

-Fe

b-2

01

9

05

-Ap

r-2

01

9

24

-May

-20

19

12

-Ju

l-2

01

9

30

-Au

g-2

01

9

18

-Oct

-20

19

06

-Dec

-20

19

24

-Jan

-20

20

13

-Mar

-20

20

01

-May

-20

20

Eur/

t

RPET Value Chain

PET Bottle Grade FD Europe PET Bottles, Colourless, Post-Consumer FD NWE Spot

RPET Flake, Hot-Washed, Colourless FD NWE Spot flake production costs (30% process loss)

margin on 30% process loss flake production costs (30% process loss) €100/t lower

margin (30% process loss and €100/t lower)

Growth in Europe RPET market

European collection volumes current and projected

9

Collection growth forecasted at ~3% pa for 2019/2020

To reach SUP targets collection volumes must almost double

Average growth rate would need to be 9% pa

Limited investment in collection and sorting systems constricting growth in collection volumes and quality

Deposit return schemes proposals

000/

t

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2016 2017 2018 2019 2020 - 2025 2030

Collection Growth rate Collection to meet SUP

Growth in Europe RPET market

European RPET usage in food contactbottles current and projected

10

RPET flake and food grade RPET usage currently maximised to available capacity

To reach SUP recycled content targets usage of food grade RPET must almost triple

Average growth rate in food grade RPET volumes would need to be 26% pa to 2030

Lack of high quality feedstocks is limiting investment in food grade RPET capacity

Preform producers installing extrusion capacity 0

200

400

600

800

1000

1200

1400

1600

2018 - 2025 2030

000/

t

Current RPET usage in food contact bottlesRPET usage to meet SUP targets

Europe RPET End Markets

11

Fibre23.0%

Bottles - food contact24.5%

Bottles - non food contact

2.8%

Sheet39.8%

Strapping8.0%

Other1.9%

2018

Sources: NAPCOR and ICIS

Which end markets are facing the greatest challenge?

12Date

• Recyclable claims more than theory• Collection systems, technology and capacity to recycle required

Competitionfor supply

• Applications that fail to develop recycled materials will face challenges as legislation and consumer pressure could build

• Fibres use recycled content but feedstock sourced from bottle market – could face challenges if do not develop textile recycling

Carbon footprint• CF should support use of plastics in many

applications, if focus is environmental impact, BUT onus of end of life solutions remain with producers

Single use • SU under threat but focus is on plastic element not

single use aspect – need focus on circularity

Substitution • Potential polymer substitution – especially with lack of food grade options outside RPET

• Competition from glass, metal, paper

Recyclable vs recycled

Fiscal stimulus packages and ‘green’ investment to tackle pandemic, recession and global climate crisis

13

Green Recovery Alliance

Commitment is key

14

Short term reaction to low virgin prices likely to negatively impact long term goals - potential reduction in recycled supplyReduced supply increases competition for already constrained supply and prices expected to riseInvestment likely to stall as viability of recycling business reassessed by some parties in the chainIncreases likelihood targets will be missedPotential backlash from consumers and action from legislators if industry fails to meet targets (EPR, plastic taxes…)Strive for circular economy, reduced carbon footprint, tackling of plastic pollution continues and will grow

Safeguarding the Plastic Recycling Value Chain:Insights from South and Southeast Asia

Tam Nguyen, GA Circular19 August 2020

GACIRCULAR.COM | CIRCULATECAPITAL.COM 16

Tam NguyenHEAD OF OPERATIONS, GA CIRCULAR


170,000Data PointsCollected

1,400Waste AuditsCompleted

5,200Stakeholder Meetings

Completed

25Independent studieson Circular Economy

INDIA TAIWAN

PHILIPPINES

BRUNEI

VIETNAM

INDONESIA

SINGAPORE

MALAYSIA

THAILAND

MYANMAR LAOS

About GA Circular

PROJECT EXPERIENCE IN ASIA

Research & Data Analytics

Strategy & Policy

Advisory

TechnicalAssistance

StakeholderEngagement


About This Study

This study was commissioned on behalf of Circulate Capital in May 2020 as worrying anecdotal evidence began to emerge showing the dire challenges facing the plastics recycling value chain due to the Covid pandemic.

● Five countries: India, Indonesia, Thailand, Philippines and Vietnam.

● Four key plastic resins: PET, HDPE, LDPE and PP

● 3 time periods (pre-Covid, during Covid lockdowns, post-Covid lockdowns).

● 100 in-depth interviews across the whole plastics recycling value chain (recyclers, processors, aggregators, junk shops and the informal sector workers).


The plastics recycling value chain faced significant challenges well before the Covid pandemic - for example: Global Crude Oil Prices.

Source: United States Energy Information Administration

$70 minimum pricing to create competitive conditions for recyclers

2008Global Financial Crisis

2020Oil production negotiation

issues and Covid pandemic

Under current market conditions, recyclers

generally need oil prices to be at a

minimum of $70 or more to compete

effectively against virgin prices.


Covid lockdowns and realities per country varied greatly, but all are facing similar and dire challenges

Table: timeline of implementation and relaxation of Covid-19 containment measures. Note that India is ordered before the Philippines as recyclers in India have been allowed to open sooner than in the Philippines.

Country

January February March April May June

1 2 3 4 5 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

Vietnam

Thailand

Indonesia

India

Philippines

LEGEND WEEKS DEFINEDState of Emergency National state of emergency declared by government authorities Week # DatesSocial Distancing No mandatory lockdowns in place, but some precautions being taken 1 1st - 7thLocalised lockdown Certain states, cities or districts of the country are in mandatory lockdown 2 8th - 15thComplete lockdown Either most or all of the country is in a mandatory lockdown 3 16th - 23rdEase of lockdown Reduced restrictions and little to no lockdowns throughout country 4 24th - 31st


Due to Covid lockdowns and lack of essential service status, a significant proportion of the recycling industry has either closed or are operating at low capacities

Notes: Operating capacities are the average for the country based on all recyclers and associations interviewed. Whilst some recyclers are operating at 80-90% capacity, these are outliers. The large range for % of recyclers operating in India accounts for the differences between PET recyclers (about 65-70% open) and Polyolefin recyclers (about 20-30% open).

VIETNAM INDONESIA INDIA THAILAND PHILIPPINES

DURINGLOCKDOWNS <20% 30 - 60% <10% >50% <5%

G % OF RECYCLERS OPERATING G

POST LOCKDOWNS(as of june)

50 - 70% 60 - 80% 20 - 70% >50% 50 - 80%

G OPERATING % AS COMPARED TO INSTALLED CAPACITY G

20 - 50% 40 - 70% 25 - 50% 50-60% 30 - 60%


Low crude oil prices have driven virgin plastics down by 30% year-on-year

Sources: International Monetary Fund and U.S Energy Information Administration (Global Crude Oil Prices), Plastic Institute of Thailand (Virgin resin prices). Note: Thailand virgin prices are used as an example, as Thailand is the largest resin producer out of the four Southeast countries of focus in this study.

“Recycled plastic prices started to drop from Dec 2019 / Jan 2020 due to oil price drops.

From Dec 2019 to pre-Covid, our sales prices had already dropped by 12-14%.”

Recycler in Indonesia

Thailand virgin resin price reduction (YoY)All resins (average) -30%

PET -37%

HDPE -34%

PP -27%

LDPE -20%


Two reasons for drop in recycled plastic demand: low oil / virgin plastic prices and covid-induced economic downturn




FACTOR IMPACT ON PLASTIC DEMAND

VIRGIN PLASTIC DEMAND

RECYCLED PLASTIC DEMAND

OIL PRICESReduced oil prices have led to reduced virgin plastic prices. This has reduced recycled plastic consumption and increased virgin plastic consumption, as stakeholders have reverted to virgin plastic due to its significant price discount.

↑ ↓

COVID-INDUCED ECONOMIC DOWNTURN

The lockdowns and continued restrictions on industries/consumers globally, in addition to the economic downturn/low consumer confidence, have reduced demand for plastics overall.

↓ ↓


Sources: Recycler interviews throughout 5 focus countries (recycled resin pricing), Plastic Institute of Thailand (virgin resin prices).

The fall in virgin resin prices have forced recyclers to slash prices by an average of 21% across the 4

key resinsD

UR

ING

/ PO

ST L

OC

KDO

WN

2019

2019

2019

2019

2019

2019

2019

2019

DU

RIN

G /

POST

LO

CKD

OW

N

DU

RIN

G /

POST

LO

CKD

OW

N

DU

RIN

G /

POST

LO

CKD

OW

N

DU

RIN

G /

POST

LO

CKD

OW

N

DU

RIN

G /

POST

LO

CKD

OW

N

DU

RIN

G /

POST

LO

CKD

OW

N

DU

RIN

G /

POST

LO

CKD

OW

N

PRICING:Virgin Resin (Thailand) and Recycled Resin (5 Country Average)


Aside from low oil prices and Covid’s economic impacts, there are also six other impacts of Covid which are impeding volumes traded across the region




Feedstock shortages

Cash flowissues

Workershortages

Fear ofcatching Covid

Logisticsbarriers

Lack ofgov’t support

Vietnam

Thailand

Indonesia

India

Philippines

Major challenge

Medium challenge

Limited issue“Fortunately we had a decent cash position before Covid so we’ve been able to survive. We were just lucky that before the lockdown we received a few payments, so we had cash/liquidity when the market had no cash.”

Aggregator in India

“We are not interested in taking on any more debt when there are currently no buyers.”

Recycler in Vietnam

The volume of recycled plastics traded hasreduced by 50-65% for those currently in

operation


Stage in the Recycling Value Chain

% Reduction in volumeof recycled plastics

traded

Recyclers/Processors 51% ↓Aggregators 50% ↓Junk Shops 54% ↓Informal sector Collectors 65% ↓

The volume reductions of 50-65% are for the recycling value chain which are open. If the entire recycling value chain was in operation, the average reduction in volumes traded would be even higher.


There is a lack of confidence amongst the value chain for a swift recovery. Their major concern is the projection of low crude oil prices for the

foreseeable future.




Source: Historical and forecasted crude oil prices (and future price and 95% confidence intervals), based on the best case of West Texas Intermediate (WTI) prices, by US Energy Information Administration (EIA)

https://www.eia.gov/outlooks/steo/report/prices.php#:~:text=EIA%20expects%20monthly%20Brent%20prices,of%202020%20and%20through%202021.

“Even though the domestic lockdown has finished, orders are still very weak from overseas customers where most of our business is.

We are concerned that with oil prices being low for the foreseeable future, orders may not pick up.”Recycler in Vietnam



40-60% of the recycling value chain is in critical financial positions (at risk of bankruptcy or permanent closure)

Source: Based on GA Circular in-depth interviews of recyclers in the 5 countries.

About 30-50%

Can continue operations

Less than 10-20%

Healthy financial position

40-60%

Critical financial positions (risk of bankruptcy or permanent closure)

“Of the 47 PET recyclers in India, 15 are closed and the remaining 32 are operating at 25-30% capacity and are not selling all output.

If the situation continues for the next 3-6 months, 50% are expected to go bankrupt.”

Recycling Association in India

“We have depleted 100% of our savings and we were forced to apply for a bank loan. Because of our bank loan and low sales, we are losing money at the moment. If demand doesn’t pick up or if there is another lockdown, we will go bankrupt.”

Recycler in the Philippines


Key Takeaways

Six key impacts of low oil prices and Covid on the recycling value chain in South and Southeast Asia

1. A significant proportion of the recycling industry is either closed or operating at low capacities, due to Covid lockdowns and lack of essential service status.

2. Sales prices for recycled plastics have fallen by 21% on average year-on-year (YoY).

3. The volume of recycled plastics traded has fallen 50-65% for those operating (would be higher if all recyclers were in operations.

4. The most vulnerable (informal sector, low value plastics) have been the most affected.

5. There is a lack of confidence amongst the value chain for a swift or smooth recovery.

6. The value chain is cash-strapped and the outlook is poor, thus further bankruptcies and closures are projected (40-60% of recyclers are in critical financial positions, at risk of bankruptcy or permanent closure).

Three phases of interventions






HIGH PRIORITYPHASE 1:

IMMEDIATE(less than 3 months)

Recyclers and Value Chain:

● Offtake agreements with recyclers

● Grants or low interest loans to recyclers

● Reduction or delays in tax payment burdens

● Commitment to their recycled content targets and EPR

● Recognizing the recycling value chain as an essential service

Informal Sector Collectors:

● Personal protective equipment (PPE) and food supplies

● Financial grants

PHASE 2:

REMAINDER OF 2020(3-6 months)

● Workforce retention efforts - e.g. Increased benefits, recognition, safety assurances

● Develop food grade resin capabilities and capacity (brand owners to work with recyclers)

PHASE 3:

2021 AND BEYOND(6+ months)

● Increase recycled content targets

● Tax virgin plastic usage

● Mandate design-for-recycling policies

● Improve quality of feedstock

● Policies to enable recycled content usage in food grade applications

The current set of challenges facing the industry is dire. The threat of collapse is on the horizon if interventions are not made within the next 1-6 months.

Thank you!

covid-19 and recycling markets –what lies ahead? · pet bottle grade fd europe pet bottles,...

Documents