The new year has brought a renewed sense of optimism among European polyethylene terephthalate recyclers as the R-PET flakes discount to virgin resin prices hit its widest in nearly four years this week, sparking real hopes that they can claw back some market share and improve profit margins.
R-PET flakes' discount versus virgin was assessed at Eur315/mt Wednesday, the widest since March 6, 2013 when it stood at Eur320/mt, according to S&P Global Platts data.
Virgin PET prices have climbed Eur145/mt since the start of 2017 to Eur1,060/mt FD NWE this week -- the highest in nearly 19 months -- largely due to increases in feedstock monoethylene glycol and paraxylene prices.
Meanwhile, the spot R-PET flake price has had a relatively sedate start to the year gaining just Eur25/mt. This week it was assessed stable at Eur745/mt FD NWE, the highest since mid-May last year.
Moves in R-PET prices tend to be more gradual than in the virgin market, market participants noted.
Price increases for baled bottles, the feedstock for R-PET, have been relatively small compared to those on MEG and PX, and despite an uptick in demand, the R-PET market remains fairly well supplied after several quarters of relatively weak demand.
Weak R-PET sales were mainly a function of the narrow discount to virgin, which averaged just Eur167/mt 2016 and Eur150/mt in 2015.
Buyers generally need an R-PET discount of around Eur200-300/mt on flake prices to make economics work, according to recycling sources.
The weak economics on R-PET exerted substantial pressure on fundamentals, which saw many buyers reducing their R-PET offtake and switching to virgin, causing serious financial difficulties for recyclers.
"Previously, people had many projects on shifting their plastic requirements to R-PET from other polymers, as PET was the most easily recycled plastic," one recycler said. "But due to weak prices on virgin, many projects got suspended or canceled."
NEW CHAPTER IN 2017?
With a reversal in fortunes at the start of 2017, recyclers are now more confident they will be able to gradually push flake prices higher over the coming months.
Many recyclers are now aiming for a discount of around Eur250/mt over the coming months, which would not only improve their profitability but also keep demand economics healthy.
However, recyclers do face some short-term challenges in meeting any upticks in demand. Supplies of feedstock baled bottles remain limited during the winter season, leading to price increases in some NWE countries.
Another recycler said there had also been some exports on baled bottles to Southeast Asia, which further restricted availability.
Nevertheless, with stability in the energy complex and limited downside risk in the PET complex, recyclers seem optimistic that that the worst is behind them.
"Indeed, R-PET prices will rise gradually and the discount could widen in the meanwhile," a third recycler said, noting that higher crude oil prices should help give recyclers some breathing space. "Hope 2017 will be a better year for R-PET looking at crude prices rangebound in the mid $50s/b."
