Coronavirus and Crude: The impact on recycled plastic prices Matt - - PowerPoint PPT Presentation

Coronavirus and Crude: The impact on recycled plastic prices

Matt Tudball, Senior Editor, Recycling, ICIS

Pre-Coronavirus upstream markets – driven by crude

2

Outlook 2020 – what ICIS said

• PET – “Choosing what is most likely to test the PET industry in Europe may lead to a

resounding "War on Plastic!", but the challenges are many and overcoming them will not be easy.”

• PET – “A conversation without the mention of Brexit or the US-China trade war is rare

these days, because nobody really has an answer to the dilemmas the industry faces”

• PE – “European PE has been in the grip of a new swathe of imports at the end of 2019,

and the impact of the new plants, and more to come, is expected to also resonate throughout 2020.”

• PP - “several sources see the current situation as the bottom of a normal cycle that will at

some point pick up…most sources expect a slower year in 2020, but not a disastrous year”

• R-PP - demand will substantially increase on the back of rising interest from the

automotive, packaging, white goods and flower pot sectors

• R-PE – “demand from the packaging industry is expected to increase – as it has

throughout 2019 – amid the ongoing consumer and regulatory backlash against single- use plastic”

• MEG - “anything between horrible and dreadful” for 2020

3

What caused the 2020 crude crash?

• Lockdowns caused drop in overall oil

demand

• Reduction in flights, road transport

etc, required less oil

• OPEC+ production cuts not enacted

until May, creating over-supply

• US storage close to capacity, traders

keen to sell rather than store

• US WTI traded -$37/63/bbl on 20

April

4

Coronavirus impacts seasonal R-PET demand

5

Lockdowns, social distancing impact recycled markets

6

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

7

• 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

R-PE, R-PP price spreads over virgin

8

Conclusions

• Crude prices will determine direction of virgin material, which will impact recycled

markets

• Lower virgin prices will impact recycled demand in the short-term because of

substitution

• Recycled prices now decoupled from virgin
• Sustainability targets are continuing to support some grades of recycled material

because of long-term contracts and concerns over security of supply

9

How COVID-19 Is Reshaping Recycling Supply/Demand Fundamentals

Mark Victory, Senior Editor, Recycling, ICIS

The Market Pre-Coronavirus

• Sustainability targets gathering pace
• Consumer and regulatory pressure

high

• Slew of regulatory announcements in

Italy, France, the UK

• Shortage of EFSA approved food-

grade material across Europe

11

Polymer Approx availability R-HDPE 100,000 tonnes/year R-LDPE X R-Nylon X R-PET 300,000 tonnes/year R-PP X R-PS X R-PVC X R-PMMA X

The Development Of A Two-Tier Market

12

Intensifying Since H2 2019

13

Margins for Packaging Grades Rise

14

While Margins for Non- Packaging Grades Fall…

15

The Impact of Coronavirus on Supply and Demand

• Players substitute to virgin on price, security of supply, and ease of use
• Packaging demand falls 20-30% in April y-o-y across recycled polymers
• Non-packaging demand falls even more sharply
• R-PP demand falls 50%
• Collection in France and UK limited, but counterbalanced by consumption
• Projects delayed as players unwilling to take risks on new suppliers
• Buyers defer sustainability targets because public and regulatory attention is

elsewhere

16

Underlying Growth

• Expected growth in maturing markets fails to emerge, changing fundamental

investment assumptions

• Consumer demand difficult to predict
• Risk of sustained recession adding further supply chain stressors
• Plant completion times extended

17

The Result Has Been Falling Margins Across Most Grades

18

Including The More Embedded R- PET Market

19

Pressure On Already Struggling Markets Intensifies

20

And Nascent Markets Start To Struggle

21

Short-term Supply and Demand Restores more traditional trading patterns

• Most grades falling in less established markets
• Some packaging grades falling more sharply
• R-PET food grade pellet prices fall for first time since Feb 2016
• Negative macroeconomics could mean lower municipality infrastructure

investment

• Underlying consumer pressure dormant but not dissipated
• Players move away from monthly/quarterly pricing on increased uncertainty

22

Impact on Investment

• Investment decisions delayed
• Increases likelihood targets will be missed
• Limited cashflow and bank refinancing add insolvency risk

23

Mid-term Supply and Demand Divide Intensifies

• Longer-tail for automotive/construction demand return embeds two-tier market
• Lack of investment/delayed start-ups intensifies the demand short-falls for high-

quality material

• Negative macroeconomics could mean lower municipality infrastructure

investment

• Underlying consumer pressure dormant but not dissipated

24

Longer term Supply/Demand Imbalance Builds

• FMCGs remain committed to recycling targets
• No regulation abandoned, though some pushed back
• ‘Social taxes’ such as plastic taxes and extended producer responsibility more

likely in post-COVID-19 reconstruction

• Lack of underlying growth heightens existing supply shortages
• Competition for material increases

25

Sustainability – can recycled plastics survive the waves of volatility?

ICIS Webinar - 10 June 2020 Helen McGeough, Senior Analyst and Global Analyst Lead for Recycled Plastics

Potential uncontrollable factors impacting recycled materials

Influencing factors are both domestic and global

Crude oil, force majures 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

Decades after it became part of the fabric of our lives, a worldwide revolt against plastic is under way

‘The Guardian, Nov 2018’

Plastic panic

Date 28

Impact of consumer pressure

29 Date Presentation title

150

Food 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

Legislation driving change in the plastics industry

30 Date Presentation title

Recycling targets in Europe 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%

(*) Single-use plastic cutlery, plates, straws; cotton bud sticks made of plastic; plastic balloon sticks; EPS cups; plastic bottles

Influence of brands

Pushing recycled content beyond mandated levels Raising quality expectations for recycled products Driving prices upwards for supply constrained recyclate Unbalancing markets as demand outstrips supply

Presentation title 31

Market drivers differ, but similar pressure on sustainability commitments

32 Date Presentation title

0% 50% 100% 150% 200% 250% 600 700 800 900 1000 1100 1200 1300 1400 1500 09-Jan-2015 27-Mar-2015 12-Jun-2015 28-Aug-2015 13-Nov-2015 05-Feb-2016 22-Apr-2016 08-Jul-2016 23-Sep-2016 09-Dec-2016 10-Mar-2017 26-May-2017 11-Aug-2017 27-Oct-2017 19-Jan-2018 06-Apr-2018 22-Jun-2018 07-Sep-2018 23-Nov-2018 15-Feb-2019 03-May-2019 19-Jul-2019 04-Oct-2019 20-Dec-2019 06-Mar-2020 22-May-2020 Price relationship virgin to FG RPET % 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 0% 20% 40% 60% 80% 100% 120% 140% 600 700 800 900 1000 1100 1200 1300 1400 1500 09-Jan-2015 03-Apr-2015 26-Jun-2015 18-Sep-2015 11-Dec-2015 11-Mar-2016 03-Jun-2016 26-Aug-2016 18-Nov-2016 24-Feb-2017 19-May-2017 11-Aug-2017 03-Nov-2017 02-Feb-2018 27-Apr-2018 20-Jul-2018 12-Oct-2018 11-Jan-2019 05-Apr-2019 28-Jun-2019 20-Sep-2019 13-Dec-2019 06-Mar-2020 29-May-2020 Price relationship virgin to RPET flake % 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

Fragility in the recycle chain

33 Date Presentation title

• 200

200 400 600 800 1000 1200 1400 1600 07-Mar-2014 25-Apr-2014 13-Jun-2014 01-Aug-2014 19-Sep-2014 07-Nov-2014 26-Dec-2014 20-Feb-2015 10-Apr-2015 29-May-2015 17-Jul-2015 04-Sep-2015 23-Oct-2015 11-Dec-2015 05-Feb-2016 25-Mar-2016 13-May-2016 01-Jul-2016 19-Aug-2016 07-Oct-2016 25-Nov-2016 27-Jan-2017 17-Mar-2017 05-May-2017 23-Jun-2017 11-Aug-2017 29-Sep-2017 17-Nov-2017 12-Jan-2018 02-Mar-2018 20-Apr-2018 08-Jun-2018 27-Jul-2018 14-Sep-2018 02-Nov-2018 21-Dec-2018 15-Feb-2019 05-Apr-2019 24-May-2019 12-Jul-2019 30-Aug-2019 18-Oct-2019 06-Dec-2019 24-Jan-2020 13-Mar-2020 01-May-2020

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

Lack of commitment to recycle today could jeopardise long-term targets

34 Date Presentation title

• 200

200 400 600 800 1000 1200 1400 1600 07-Mar-2014 25-Apr-2014 13-Jun-2014 01-Aug-2014 19-Sep-2014 07-Nov-2014 26-Dec-2014 20-Feb-2015 10-Apr-2015 29-May-2015 17-Jul-2015 04-Sep-2015 23-Oct-2015 11-Dec-2015 05-Feb-2016 25-Mar-2016 13-May-2016 01-Jul-2016 19-Aug-2016 07-Oct-2016 25-Nov-2016 27-Jan-2017 17-Mar-2017 05-May-2017 23-Jun-2017 11-Aug-2017 29-Sep-2017 17-Nov-2017 12-Jan-2018 02-Mar-2018 20-Apr-2018 08-Jun-2018 27-Jul-2018 14-Sep-2018 02-Nov-2018 21-Dec-2018 15-Feb-2019 05-Apr-2019 24-May-2019 12-Jul-2019 30-Aug-2019 18-Oct-2019 06-Dec-2019 24-Jan-2020 13-Mar-2020 01-May-2020

Eur/t

RPET Value Chain – lower bale costs

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)

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

35 Date Presentation title

Green Recovery Alliance

Commitment to sustainability is key

36 Date Presentation title

Short term reaction to low virgin prices likely to negatively impact long term goals - potential reduction in recycled supply Reduced supply increases competition for already constrained supply and prices expected to rise Investment likely to stall as viability of recycling business reassessed by some parties in the chain Potential backlash from consumers and action from legislators if industry fails to meet targets Strive for circular economy, reduced carbon footprint, tackling of plastic pollution continues and will grow

Upcoming Virtual Training Courses Petrochemicals: An In- Depth Introduction

29 June - 2 July 2020

(Start Time 08:00AM GMT)

• Understand what petrochemical producers do

and how they serve society’s needs

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sustainability are impacting chemical markets

An Introduction to Plastics Recycling

6, 7, 8 & 10 July 2020

(Start Time 13:00PM GMT)

• Unravel the complex and vital role of plastics

recycling in the future success of the industry

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• Analyse pivotal market trends and the impact
• f uncontrollable factors on recycled materials

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Email for more information: icis.training@rbi.co.uk

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