Even though China is moving back towards normality, the Coronavirus pandemic has tipped the world into recession. With oil values at historic lows, the plastics recycling industry has been deeply affected and prices have come under pressure, not least because of the steep decline in demand. However, the pandemic should be followed by many opportunities for the recycling industry.
A few months ago, the world feared that uncertainties surrounding Brexit and the US/China trade war would lead to global recession. Today, it is the Coronavirus that is shaking the entire world, and with devastating consequences. Indeed, we are going through one of the most challenging times ever seen.
The fight against COVID-19 is the top priority at present and everything needed to stop this virus must be done. The world is suffering and mourning its many losses as the Coronavirus tests the limits of our systems. This extremely difficult situation is a shock for all mankind and for the global economy.
Since the start of the year, oil prices have plunged after the combined impact of COVID-19 and the breakdown of the original OPEC+ agreement. With no end in sight, and producers around the world continuing to pump oil, the result has been a fire-sale among traders who don’t have access to storage. This extreme move illustrates just how oversupplied the oil market has become with industrial and economic activity grinding to a halt as governments around the globe extend shutdowns in response to the swift spread of the virus.
Recycling companies are going through difficult times. Demand for recycled plastics is very weak as a result of the lockdowns implemented in a large proportion of countries. In all sectors not considered essential, processors and buyers of plastic products have suspended or massively reduced production. The resulting slump in demand has led to swelling inventories for a large number of recyclers. Against this backdrop, many of them are also cutting back on output, putting employees on short-time working and even planning a complete shutdown. An additional problem for many companies is the lack of liquidity owing to high stocks and the large investments made over the years.
Market observers expect that some of the smaller recycling companies in particular will not survive this period of drought.
The low oil price has pushed prime virgin material values to historically low levels; the gap between virgin and recycled material has melted away. Coupled with weak demand, this has resulted in very low prices for all types of recycled plastics, including LDPE, HDPE, PP and HIPS.
Car producers such as Volkswagen are planning to restart some of their production lines towards the end of April. Following a certain delay, converters would then resume purchasing during the first week of May. Until then, most prices of recycled material will probably fall significantly further. In other segments, the easing of lockdown measures should provide for a faster revival of demand, which will limit the price reduction accordingly.
In some cases, virgin material producers have adopted supportive measures as a precaution, and these will have a stabilizing effect on recycled engineering polymer grades.
In China, the peak of the Coronavirus appears to have passed and the country is thus moving back towards normality; it is expected that business will be at perhaps 30-40% of pre-Coronavirus levels. In the rest of the world, however, there is still a long way to go.
No-one knows what will happen when the Corona-crisis is over. European leaders have stated that they will do “whatever it takes” to tackle the social and economic consequences of the pandemic. The recovery will come only after massive investments to protect jobs and support all of those companies that have suffered as a result of the economy coming to a sudden halt.
The pandemic appears to have shifted important environmental topics from the top of the agenda, and thus implementation of the circular economy will be automatically slowed in a way that, ultimately, will have a negative effect on the plastics recycling industry.
On the other hand, many opportunities will follow in the wake of the pandemic when the time comes to rebuild. This moment of recovery will be an opportunity to rethink our society and to develop a new model of prosperity. The massive investments must trigger a new global economic model that is based on the principles of the circular economy, with new value chains and a very important role for “our” recycling industry.
Henk Alssema
VITA Plastics (NLD), Chairman of the BIR Plastics Committee
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