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HOUSTON (ICIS)–While 2022 was a year of intense volatility for the US recycled polyethylene terephthalate (R-PET) and recycled polyethylene (R-PE) markets, demand for recycled resin in both categories is returning as Q2 approaches.

This is not to say that growing pains will not continue in 2023, as new recycling capacity is added and end-market demand continues to shift from the traditional cost-sensitive industries towards consumer brand companies as they source increasing volumes of recycled resin to meet their sustainable packaging and product goals.

R-PET In line with traditional seasonal supply tightening, availability post-consumer polyethylene terephthalate (PET) bottle bale feedstock remains constrained. As cooler weather persists across the country, it causes a decreased consumption of bottled beverages and thus, lower collection volumes.

As a result of both supply tightening and the return of packaging related downstream demand, East Coast PET bale, R-PET flake and R-PET pellet prices have increased over the last several weeks.

This market movement has occurred despite the absence of several large fibre recyclers, who utilise PET bottles in the production of polyester fibre. Fibre recyclers have remained muted in the market, as their downstream product demand has been heavily impacted by the macroeconomic headwinds.

Fibre demand tied to carpet production will remain weak as interest rates continue to rise and home or building construction activity remains muted on economic headwinds. High-value textile demand will also remain under pressure from weak Asian textile market principles.

Without substantial demand from these players, the US R-PET market is unlikely to experience the record high prices and resin tightness which was witnessed in the spring and early summer of 2022.

Though, this poses an opportunity for food and beverage companies to potentially secure larger volumes of R-PET material, particularly as beverage season approaches.

R-PE Cost-sensitive grades of R-PE may soon see increased demand, on tightening virgin inventories.

These grades of R-PE are constituted of both mixed-coloured or post-industrial material, which do not have the sustainability appeal and are typically used in non-consumer facing applications such as automotive, construction or secondary packaging.

As these end-markets adjust to new 2023 economic outlooks, several resin buyers have returned to the market, having exhausted destocking efforts over the last several months.

Moreover, virgin producers had previously reduced production rates to better control inventory, thus availability of competitive wide-spec cargoes has decreased, creating a demand opportunity for these grades of R-PE.

On the other end of the spectrum, sustainability-driven grades of R-PE continue to experience increasing demand throughout Q1 and into Q2, as evidenced by elevated natural coloured high-density polyethylene (HDPE) bale prices despite the previous overall polyethylene (PE) market softness.

East and West Coast natural HDPE bale prices continue to climb, as downstream demand from consumer goods companies remains strong but supply is unchanged on flat recycling rates.

The US R-PE market remains systemically short when it comes to feedstock supply of natural, post-consumer material.

Natural material is sought after by consumer brand companies due to its colour flexibility, enabling brand companies to match existing product designs but with recycled plastic content.

At present, natural post-consumer R-HDPE blow moulding resin maintains a +200% price premium to that of virgin.

Sustainability-driven demand growing in market share Much like in 2022, consumer brand companies are expected to continue to increase usage of post-consumer recycled (PCR) plastic in their product packaging, in order to meet voluntary commitments and regulatory requirements. As markets readjust to 2023 economic outlooks, Q2 demand shows signs of improvement across several grades of US recycled plastics.

According to the 2022 Ellen MacArthur Global Commitment Report, several global brand companies are still far from their 2025 PCR content pledges, with only 23% of brands and retailers on track to achieve their targets.

Though PCR content usage has doubled from under 5% in 2018 to 10% in 2021, the aggregate goal remains 26% by 2025 which would require an annual growth rate in content usage of 27% over the next three years, according to the report.

This comes as four states – California, Washington, New Jersey and Maine – have mandated recycled plastic content in both food and beverage packaging as well as other plastic items such as bags.

Connecticut is set to be the fifth state to mandate recycled content, as rule-making on the covered items, content percentages and timeline should be released imminently.

Furthermore, California’s PCR content mandate (AB 793), which went into effect January 2022, has begun penalising those who are not compliant as of 1 January 2023, with a 20 cent/lb fine for every pound of material missed.

To support this demand, several capacity expansions and new facilities across the US market will provide increased supply of R-PET and R-PE resins.

As the market continues to grow, in order to feed increasing PCR content demand, additional expansions, acquisitions and new facility announcements are expected both globally and in the US. As larger players enter or emerge within the market, emphasis will be on long-term stability in terms of contracted supply and offtake agreements to combat future fluctuations in the secondary materials market.

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