European PE prices at a decade low, eroding demand for recycled grades

With PE prices at 10-year lows, buyers in the recycling sector are pointing to the gap between virgin and recycled materials that has been narrower than usual during the most of 2019. The ongoing bearishness in virgin PE markets continues to weigh on demand for recycled grades as both products are currently priced virtually the same in some cases.

Growth in demand for recycled PE stumbles

Recycled products are usually priced below virgin material and demand towards recycled products has been growing in the thick of environmental commitments across Europe in the past few years. Nevertheless, given the shrinking gap , recycling buyers have mostly switched to virgin PE cargoes at very low prices this year rather than purchasing a recycled product that needs extra costs to be processed to manufacture their end-products.

Narrowing gap dates back to early 2019

Recycled PE markets started 2019 under the downward pressure from virgin PE markets after closing the fourth quarter of 2018 on a stable to softer note. R-HDPE and R-LDPE markets followed a stable to softer trend in the first two months of 2019 as the weakness of virgin PE market continued to exert pressure on recycled materials.

Evaporating gap pushed sellers to offer fresh discounts on their recycled materials.
Back then, a distributor said, “We had to decrease our offers significantly as LDPE prices hit the €1000/ton threshold in February. Despite the price cuts, we faced difficulties in selling our material this month as buyers preferred to purchase virgin material given their competitive levels.”

High season, firmer virgin PE supported recycled prices in Q2

Sellers managed to halt the downtrend for recycled PE starting from March thanks to the slightly firmer trend of virgin PE prices and imminent start of the high season for R-HDPE applications.

The firmer trend in virgin PE markets as well as better demand due to the high season supported stability or price hikes for recycled grades until the summer lull kicked in.

Virgin PE prices offer competitive edge at a decade low

In an amply supplied PE market, prices have been hovering around a decade low. The weekly average of spot LDPE prices in Italy already hit their lowest levels since 2009 in H2 July, according to ChemOrbis Price Index.

Recently, HDPE film prices have also dipped to their lowest levels since December 2009 following November drops.

In Northwest Europe, meanwhile, the weekly averages of spot LDPE and HDPE film hit their lowest level on a weekly average since ChemOrbis started to keep records in 2012.

Recyclers have difficulties selling material due to the extremely low PE prices. Apart from the price competition with virgin materials, low season in this time of the year led to further margin erosion for recyclers.

A distributor lamented, “We had to apply slight decreases on our September offers as prices are too similar to virgin LDPE prices that are as low as €950/ton, which makes it very difficult to sell material for us.”

Bearish PE markets dim outlook for recycled grades

The restricted gap between prime and recycled PE markets remains a key factor to watch. The near-term outlook is mostly bearish as demand is expected to remain thin amidst low season for recycled applications and ongoing weakness in virgin PE markets.