LEGISLATIVE SETBACKS ADD TO TESTING MARKET CONDITIONS: BIR REPORT

The BIR World Mirror report and CEPI report paint a stagnant market for the paper industry. Decrease in production observed across the global regions. Subdued demand for finished products has kept the lid on already-low OCC and de-inking prices heading into the new year. At the same time, the combination of thinner order books and still-high energy costs has brought increased downtime into the equation for many mills, according to the latest BIR World Mirror publication released by the global recycling organization’s Paper Division.

In terms of fibre prices, Asia has seen a little more volatility than Europe and the USA, with OCC gaining ground in October and November last year before falling back again. On the plus side, white grade and pulp substitute prices have dropped back only slightly from the high ground established many months ago, with demand for these grades fuelled by elevated prices for virgin pulp. Another positive has been the improvement in vessel and container availability/costs. Freight rates have become more supportive of export flows, with reports of increased business between Europe and, notably, Indonesia, India and China. However, the export picture has been clouded by the vote in the European Parliament to introduce stricter controls on waste shipments from the EU. Further complicating the export outlook, India’s review of limits on non-paper materials in recovered paper imports will bring further controls in countries of origin and an increase in bureaucracy.

Across into Europe, stock build-up has also been a problem for many in the recovered paper industry. Having said that, there is already evidence that high inflation is prompting the public to exercise greater caution over expenditure and a continuation of this trend is likely to dampen collection volumes to an increasing extent.

According to feedback from Scandinavia, one of the upsides of the energy crisis is that recovered fibre demand from insulation producers has remained healthy as householders respond to higher gas/electricity charges by investing in more efficient ways of keeping heat within their homes.

In Turkey, meanwhile, the paper industry has drastically reduced its capacity utilisation in the face of falling demand, prompting a rapid decline in recovered paper sales prices and purchased volumes. This comes at a time when new investments within Turkey’s paper and board industry have put the country on a course to increase its annual production capacity from 5 million tonnes at present to 8 million tonnes over the next four years.

Francisco Donoso, DOLAF Servicios Verdes S.L. (ESP), has said in his comment, “Prices in Europe and the USA were quite stable during the latter months of 2022, staying at very low levels after declines in the previous quarter for OCC and deinking grades; very subdued demand for finished products seems to have been the reason behind this. Stock levels are quite high at most paper mills owing to low consumption whereas stocks in recyclers’ yards are perhaps lower as a result of reduced collection volumes. However, our main problem is the weak demand for recovered paper.”

For white grades and pulp substitutes, the situation is quite different. Prices dropped slightly but remained at the high levels seen for many months. Demand for these grades has been strong owing to the high price of virgin pulp. However, still-high energy costs are proving to be a huge problem for every paper mill, leading to additional downtime when taking into account the aforementioned lack of demand.

PAPER INDUSTRY IMPACTED BY HIGH ENERGY PRICES AND ERODING ECONOMIC GROWTH IN 2022: CEPI REPORT

Cepi, the Confederation of European Paper Industries, released a report for 2022. The preliminary statistics say the paper industry was impacted by high energy prices and eroding economic growth in 2022. The sector can however capitalise on positive long-term trends, which the EU Green Deal Industrial Plan could accelerate. Consumption of paper in Europe remained stable in 2022, showing resilience in the face of Europe’s current economic slowdown. At the same time, production of paper and board decreased by 5.9% in 2022 compared to the previous year, according to preliminary figures released today by Cepi. A decrease in production was also observed across global regions, including most of the EU’s main competitors in the sector.

The combined developments of a decreased production and a stable consumption led to a decrease in the sector’s trade balance. The weakness of the paper production recorded during the second part of the year is to a major extent explained by Europe’s high energy and raw material costs, which have led to temporary machine stops. The slowing EU economic engine in the second half of 2022 and the paper industry openness to global markets, where growth is also stalling, have also contributed to this downward shift and the temporary drop off in competitiveness. However, Europe’s paper sector is traditionally a strong exporter, and its trade balance remains positive. Other trends in the sector, while negative year-on-year, point towards stability on the long-term, such as the utilisation of paper for recycling which decreased by 6.4% compared to 2021 but remains steady over a three-year period. High electricity and gas prices have significantly affected those paper mills which depend the most on paper for recycling for their production, which have affected the outcome in 2022.

Similarly, packaging paper and board, increasingly replacing fossil-based alternatives, remains one of the sector’s main drivers for growth. While paper packaging production in Europe has decreased by 4.6% in 2022 compared to 2021, the output of packaging paper still remains well above pre-Covid levels. The figures, calculated by tonne of paper produced, do not take into account notable advances in reducing the weight of individual paper packaging solutions, in line with the industry’s commitment towards sustainability.

In continuation from the past three years, new consumption patterns following the Covid pandemic have also resulted in a growing demand for sanitary and household grades, gaining 3.6% compared to 2021.

Jori Ringman, Director General Cepi, Confederation of European Paper Industries, said , “Long-term trends for our industry show that we can be ambitious about our future. Now we need the EU Green Deal Industrial Plan to be equally ambitious. We are confident that a transition towards a greener economy is in the long term an opportunity for the European paper industry.”

HOW DOES 2023 LOOK FOR THE PLASTIC RECYCLING INDUSTRY?

The early weeks of 2023 have produced not only a slight increase in demand for raw materials but also the European Parliament’s almost unanimous approval of controversial changes to the EU Waste Shipment Regulation. Meanwhile, energy prices have dropped and latest research has once again underlined the environmental gains from using recycled material.According to the Quarterly World Mirror released by the Bureau of International Recycling, it is still difficult to work out which way the market is going at present, with the threat of a possible recession still looming over it. Uncertainty is being fanned by the Ukraine conflict as well as by tensions between the USA and China. Even so, many economists are predicting the recession will be mild, if there is one at all.

Henk Alssema, VITA Plastics (NLD), Chairman of the BIR Plastics Committee, said, “January saw a slight improvement in demand for secondary raw materials following the steep drop at the end of last year. Plummeting demand led to a significant supply of raw materials and resulted in falling prices. PP was the big loser with prices under enormous pressure, but HDPE and LDPE also saw substantial price drops. Demand for HIPS and ABS stayed reasonably level and so the prices of these qualities remained fairly stable. Primary raw materials also witnessed steep price declines in response to a significant reduction in demand.

Alssema said, Compared to last year, our industry has noted a significant drop in energy prices although inflation continues to be an issue despite a downward trend. The higher wage costs confronting the recycling industry are fuelling fear of a wage spiral, which comes about when increases in wage costs per product are passed on in prices, with these higher prices leading to higher wage demands. It means inflation would remain elevated and would lead to central banks raising interest rates to cool the economy, he noted.

Talking about the market in China and South East Asia, Dr Steve Wong, of Fukutomi Co Ltd (CHN) and Executive President of the China Scrap Plastics Association, said, crude oil prices, in February, fell by 3% in New York to US$ 73.39 per barrel amid robust US job data that might prompt interest rate hikes, which in turn would entail high borrowing costs and thus impact the global economy.

“General PS, ABS, PP and PE prime prices remain stable to weak while engineering plastic resins such as polycarbonate, POM and PMMA have been trending higher after the Chinese New Year,” he said. Globally, petrochemical companies in Saudi Arabia, Tunisia, Jordan, Indonesia and Malaysia have quoted price increases of U$S 20-60 per tonne for polypropylene and polyethylene on rising feedstock costs. It is questionable whether downstream manufacturers will be able to pass on these increases owing to the sluggish global economy.

In China, the manufacturing PMI rose to 50.1 in January. Market players expect overseas buyers to start placing orders shortly owing to lower shipping rates while the Federal Reserve’s recent 25-basispoint interest hike indicates a slowing of the cycle of increases. Hopefully, these factors will drive more optimistic market sentiment.

Recycled materials are not necessarily reflecting prime trends because prime prices are still so cheap that manufacturers might opt not to use the recycled alternatives. Prices for some PVC, PET, PP and PE off-grade are as low as US$ 800-900 per ton and so many factories have stopped using recycled materials for economic reasons.

Our industry’s future depends on the variable prices of crude oil, prime materials and recycled materials. Additionally, the future of the recycling industry lies in mandatory use of recycled materials to help achieve environmentally sound waste management through circular economy-led sustainability programmes.

Asia & Eastern Europe

Max Craipeau, Greencore Resources Limited (CHN), has commented that record-low virgin polymer prices have been affecting sales of recyclate as the economic benefits of using cheap virgin materials have outweighed the momentum for recycled content. A global mandate for minimum recycled content is more important than ever to support the recycling industry.

Meanwhile, chemical recycling projects are progressing throughout Asia. For example, Plastic Energy - a global leader in chemical recycling technology - has signed multiple Memorandums of Understanding in the past few months with South Korea and at the G20 in Indonesia for a combined 200,000 tonnes of annual capacity. Freight rates applying to Asia-bound cargoes from Europe and the USA have returned to their pre-COVID levels and the same is also the case for most of the Asian cargo bound for Europe and the USA, thus giving some help to scrap and repropellet exporters in a market that remains sluggish.

United States

Sally Houghton, The Plastic Recycling Corporation of California (USA), said, “The plastic recycling industry is experiencing the same issues in 2023 as in the final quarter of 2022. The outlook for the rest of the current year is uncertain, with many of the same factors from 2022 impacting the present, such as the Ukraine conflict, high energy prices, inflation, the economic slowdown and China’s uncertainty about opening or closing its ports from a COVID lockdown. These economic indicators are critical to navigate the recycled plastics markets as it is an industry driven by consumer expenditure, with ties to economic activities in durable consumer goods and building construction. There is some hope that the market will improve as inflation appears to be easing and the anticipated recession has not materialized.

PET market demand remains stable, with reclaimers purchasing at consistent levels. The price has remained flat, with little change from the last quarter of 2022. The main concern for US reclaimers is the price of imported virgin PET which is selling for as low as US$ 0.60 per lb, making it difficult for domestic rPET producers to compete and move their finished goods.

There has been a consistent and steady domestic market for clear LDPE and export buyers cannot compete, offering US$ 0.04 per lb less than their domestic counterparts. Coloured LDPE is low in value but retains a loyal domestic market, with export buyers unable to be competitive on price.

The USA has seen much discussion and investment in the plastic recycling industry, with conversations centring around recyclability and sustainability at the state government level. US reclaimers have been spending money on upgrades and improvements to their facilities, with several states adopting extended producer responsibility legislation, and discussions are continuing to take place at the national level. The future looks promising and hopefully the second half of 2023 will see scrap prices increase as confidence in the economy improves.