Sustainability
and the chemicals industry – the risk in delaying the inevitable
November 2022
“We lost a whole lot of refining capacity during the pandemic, so supply will always be much tighter than it was before – there are some markets that have structurally just changed. And so maybe people are waiting for normal, and our forecasts will show that we don't expect it to be that way again. There is a new dynamic in the market.”
The chemicals market is undergoing a global, and ongoing, supply chain crisis. The question of whether the market will return to a familiar and efficient flow, and whether supply chains will resume their traditional shape, remains unforeseen and hard to predict.
A further challenge to this, is the adjacent, long-term trend of sustainability, adding complexity to the balance of short- and long-term agendas: “Everyone's so busy fighting the fires of today that it's distracting them from that really long-term goal. This is the delaying the implementation of company initiatives.” Alex Lidback, VP Chemicals Analytics, ICIS.
The war in Ukraine has now added an extra layer of uncertainty to many markets, and the recycling sector has not been left untouched. “Recyclers were already facing a very uncertain outlook at the beginning of 2022, having faced higher production costs off the back of rising energy costs in 2021. Now, the war in Ukraine has compounded that, pushing energy and production costs up further, and adding in new elements such as Ukrainian and Polish drivers returning home. This alongside a rise in fuel prices, impacts delivery costs, on top of increases in the costs of polymer-based bags and wooden pallets used to transport material – it all adds up.” Matt Tudball, Senior Editor, Recycling.
In Europe the recycling and sustainability agenda has been building pace for some time. It is not just Europe, though, which is seeing a push towards sustainability, with pressure to increase recycled content increasingly globalized.
“The strength of the signal towards the direction of sustainability has never been higher. I don’t think it’s [a binary choice] at all. What’s important is that we’re all pulling in the same direction and all targeting creating a more sustainable world where we have less impact on the environment,” Richard Rowe, President and CEO of Arkema’s North American operations, at a panel discussion at the IPC.
In the US, California became the first US state to mandate a minimum recycled content in plastic bottles, at 15% annually, which is expected to increase to 50% by 2030. Other states are following suit, with polymer supply reaching a total of nearly 6.6m tonnes/year in 2021.
Regulation ensues
“Clearly, governments are under consumer pressure to take action, so we can expect a raft of regulations to come.
Some forms will include financial penalties or obligations on the plastics supply chain, which let’s face it, post-pandemic budget constrained treasuries will welcome."
Helen McGeough, Senior Analyst and Team Lead Plastics Recycling, ICIS
In regulation, the impact of the Paris climate accords are still being felt today. In the Netherlands, in May 2021, Shell became the first company to be legally obliged to align its policies with required emission levels. By 2030, the company was ordered to cut its CO2 emissions by 45% compared to their reported 2019 levels. This figure also includes Scope 3 emissions, which for Shell, extends to the individual emissions of customer cars.
While regulation will always play a part in shaping market dynamics, it’s important to recognise the validity of pressures originating from other, more voluntary industry efforts.
For example, the Plastic Pacts from The Ellen MacArthur Foundation and WWF are a key driver for change, enlisting global support from retailers, government agencies, recycling associations and FMCG brand-owners, despite being voluntary initiatives: “They are highly influential, as you have signatories from multiple end markets saying we will use 25% of recycled content in our packaging, in markets that don’t necessarily have rules that permit that, that will shift behaviour, and these changes will force the supply chain to strive for that goal.
Equally today, with the combined approach from FMCG brands, they will also push recycling from an end-user perspective, which will again, influence action throughout the supply chain.” Helen McGeough, Senior Analyst and Analyst Team Lead Plastics Recycling, ICIS.
Big fish in an even bigger pond
"We are only delaying the inevitable. The here and now is that there have been great disruptions in supply chains, and a genuine crisis from rising energy costs and cost of living due to inflation across markets. But it doesn't mean sustainability is going away, and quite the opposite.
It is going to be integral to the survival of business in the future – dealing with day-to-day problems is all well and good, but we should always be looking forward."
Helen McGeough, Senior Analyst and Team Lead Plastics Recycling, ICIS
The common, industry-wide issue is that there is far more plastic than the waste system can recycle.
“The biggest bottleneck, in any mechanical or chemical recycling, anywhere across the world, is investment in collection and sourcing capacity. There is simply not enough input material, and there also isn’t enough sorting capacity to separate out the good from the bad quality material. The industry can invest millions and millions in reprocessing capacity, but if they cannot get access to the waste, if they cannot get enough collection supply, then they won't ever hit their targets individually or on an industry-wide basis.” Helen McGeough, Senior Analyst and Team Lead Plastics Recycling, ICIS.
The lack of material drove prices for some recycled plastics to record-high levels in the first half of 2022, and this did not go unnoticed elsewhere in the world. “Increasingly we saw non-EU actors looking to get a piece of the European market, attracted by the high prices as a result of strong demand in an under-supplied market,” Matt Tudball, Senior Editor, Recycling at ICIS. However, some European customers are deterred from purchasing imports from outside the region because of the long delivery time or lack of traceability – a key issue for many large packaging producers.
“ICIS’ regular coverage of the virgin and recycle markets have shown the trend for virgin resin prices trading below those for recycled polymer. With most packaging brands committed to recycled content targets higher than any mandate, especially the beverage sector using PET resin, the cost of sustainability can run high but the reputational risk of moving away from those pledges is even higher.” Matt Tudball, Senior Editor, Recycling at ICIS.
ICIS estimates that a CAGR (Compound Annual Growth Rate) of nearly 40% would be needed in order to achieve 25% of recycled content in packaging by 2025. Current forecast subscribers, click here to view the full insight.
Non-subscribers, speak to us to find out more:
Although short-term demand for recycled materials – particularly non-packaging grades – has fallen in the second half of 2022 amid the growing cost-of-living crisis, markets remain structurally short of what’s needed to meet ambitious sustainability targets in the mid-term.
“To tackle some of the structural shortages, petrochemical firms are increasingly looking to ensure access to sufficient quality waste feedstock supply, which remains the biggest bottle-neck to achieving sustainability targets across both mechanical and chemical recycling. Some petrochemical firms, have purchased waste management and recycling assets to get that access. Others have been entering in to strategic partnerships to try to source the material they need throughout the recycling chain,” Mark Victory, Senior Editor, Recycling said.
The ICIS mechanical and chemical recycling supply trackers support these objectives, providing information about installed capacity projects in recycling, and ICIS Insight and Analyse subscriptions, show current and forecasted prices on R-PET and multiple recycle commodities across the supply chain. Coupled with this, our expanding global recycled polymer pricing portfolio now offers benchmarkable prices for more than 80 different grades of recycled material at all stages of the chain from waste bales through to pellets, including global recycled polyethylene (R-PE) pricing, and recycled polypropylene (R-PP) and mixed plastic waste pricing in Europe. This information is vital for understanding what kind of investment opportunities could be upcoming, how to meet demand, and ultimately, the eventual impact on virgin polymers.
What is clear is that for chemicals producers, an integral part to this story is how to survive effectively in what is now, effectively a new climate. With the focus drawn to cost challenges, chemical players must strongly guard against the temptation to “delay the inevitable” of active participation in the sustainability agenda:
“I think there is a danger to sit there and think that our own unique contribution is making such a small impact on the big picture, because at a 40-million-ton capacity, the current penetration from recycling is low. However, ultimately that supply goes into the FMCG content, and while many businesses might have 25-30% targets today, this will not stop, and consumer pressure is going to expect the industry to keep going and taking that further and further.”
Helen McGeough, Senior Analyst and Team Lead Plastics Recycling, ICIS
“The threat is if you don't understand this, you're going to go out of business. What is it that you need to do to stay in a business that may look very different in 5, 10 or 15 years?
That's what we're trying to offer at ICIS by showing by the development of new recycling products, and making that market less opaque. What do I need to do to join in? What are the issues? What are the problems? What is the opportunity?
Particularly if it’s just an adjacent market to one businesses are currently operating in – in a few clicks, our customers will understand the detail required and if action is needed.”
Michael Connolly, Principal Analyst, Refining, ICIS
“One of the key messages I talk about, often, is that we're trying to get to a Circular Economy and the fact that there needs to be collaboration. Producers need to find their role in this; and get involved in projects, in discussions and be in that collaborative mindset.
What would happen if we applied the same sort of innovation seen to date to the next phase, which is sustainability? Businesses could reap the rewards, as well benefit the supply chain and the environment.”
Helen McGeough, Senior Analyst and Team Lead Plastics Recycling, ICIS
“We go through the complete chain, so we have a holistic view of the trends shaping the market. We give clarity on complex supply and demand dynamics.
We give you the tools to assess the feasibility of your current sustainability commitments. And with the forecast – how achievable is it into the future? We identify the macroeconomic, technical and legislative trends you need to pay attention to, to understand where investment is most necessary and the current gaps in the market.
Recycling is a complex sector, we make it easier to understand and more transparent."
For all of these questions, ICIS insight, recycled plastics insight and analytics, as well as ICIS recycling trackers provide data and depth behind the numbers, delivered through insights articles and conversations directly with the analysts themselves.
Whilst markets are increasingly difficult to clarify, ICIS executives encourage calls regarding individual needs and questions, providing an independent, authoritative voice to internal predictions - extending knowledge in your own organisation.
Speak to us to find out more about ICIS' recycling market insights and analytics.
Read more from the ICIS chemicals roundtable insights:
The global supply crisis: can analytics provide a way forward?
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