A few of the key challenges and positives in the recycled plastics market as we approach Q4 2024 and on into 2025.
Emily Friedman
As the calendar flipped to 2024, hopes within the recycled plastics sector that the space would see a 鈥渞eturn to normal鈥� were widespread. However, as we head into the end of the year and the beginning of 2025, for some grade of recycled plastic, these hopes have waned as the sector still finds itself trying to shake off many of the challenges that it has faced in the wake of the economic slowdown and the subsequent uncertainty. In that same time, markets which have strengthened now battle new challenges, such as import competition and increasing domestic capacity despite flat feedstock supply.
Market dynamics remain mixed across specific grades of recycled resins, with some witnessing strong order pipelines into 2025, while others have been forced to tread water, pending the broader economic recovery.
With so many moving parts and fluctuations, recycled plastics market players are rightfully having a difficult time making sense of what the current state of play is, and what exactly it could mean for 2025.With that in mind, here are a few of the key challenges and positives as we approach Q4 2024 and on into 2025.
U.S. R-PET Faces Weakened Supply but Strong Demand
The summer season usually means an uptick in the supply of polyethylene terephthalate (PET) bottles given more bottled beverages tend to be purchased by consumers and then are fed into recycling streams. However, in keeping with the theme of uncertainty, summer season 2024 did not usher in the same supply boost the industry is used to as beverage sales from both Coca-Cola and Pepsi Co. sagged by 1 percent and 4 percent respectively year on year鈥攁ccording to recent earnings鈥攁s consumers coped with inflationary pressure.
That said, even though beverage sales have slumped, there is a silver lining for the recycled polyethylene terephthalate (R-PET) industry as demand continues to grow thanks to voluntary recycled content targets from brand companies, and the surge in regulation requiring increased use of recycled materials in packaging and other sustainability legislation. For example, the impending kick-offs of extended producer responsibility (EPR) programs in Oregon and Colorado and the launch of California鈥檚 25 percent beverage bottle recycled content threshold has buoyed demand for R-PET as organizations scramble to put themselves in a position to meet new regulatory expectations.
In addition, innovation in recycling technology is also a potential silver lining for supply as well鈥攁lbeit an unpredictable one. Disruptive technologies such as methanolysis, have helped companies such as Eastman achieve production rates of up to 70 percent鈥攑er its Q2 earnings call鈥攚hile using harder to recycle feedstocks, however, these technologies can still be bogged down by technical issues.听听听
US R-PE Outlook More Mixed
When it comes to demand, cost sensitivity will serve as an even bigger dividing line than usual in the recycled polyethylene (R-PE) market through the remainder of the year. Underpinned by strong demand from consumer-packaged goods (CPG) companies, sustainability-driven grades like food-grade, clear R-PET and natural colored recycled high-density polyethylene (R-HDPE) will likely see a strong outlook through the rest of 2024. However, cost-sensitive grades鈥攍ike mixed colored or post-industrial recycled resins鈥攚ill continue to battle weak demand as virgin substitution remains more cost-friendly.
Cost-sensitive grades of R-PE are more commonly used in less consumer-facing applications such as automotive or construction.听Even with more positive economic conditions taking hold in 2024 for these sectors over recent years, forecasts still remain relatively subdued. Therefore, it is widely expected that demand in these markets will remain relatively weak and flat as buyers in these categories cope with uncertain economic conditions.
However, when it comes to sustainability-driven grades of R-PE strong demand is anticipated to continue in the beginning of 2025.听 For the past couple of quarters, pellet prices for popular sustainability-driven grades鈥攕uch as natural post-consumer R-HDPE鈥攈ave been surging on high bale feedstock costs due to systemically short collection rates, paired with growing demand.
The boom-and-bust pattern of the natural R-HDPE market is expected to continue, until once again, the cost premium is unsustainable by the end customer, thus forcing a drop in demand which then crashes bale prices. The market has seen two crashes in the last three years.
Will Brands Continue to Ramp Up Recycled Plastic Commitments?
As one of the foremost consumers of plastics, the CPG industry continues to face both internal and external pressure to boost its sustainability performance and reduce its carbon footprint. With that, several prominent CPG brands have laid out ambitious targets, many with 2025 deadlines, aimed at cutting their waste and creating a more circular economy.听 Progress on this has been mixed to date. PepsiCo, for example, has recently announced that it is going to fall short of its goal of hitting its 100 percent recyclable, compostable, biodegradable, or reusable packaging goal by 2025. In addition, while Unilever recently reported successfully hitting its target of using 25 percent of recycled material in all packaging by 2025, it is not on track to hit its virgin material reduction target and other 2025 packaging goals. The U.S. Plastics Pact has also tweaked its Road Map to 2025 after many members failed to hit established thresholds.
Although success has been hit or miss, as circularity continues to become a bigger motivating factor among internal stakeholders and regulators, expect brands to continue make renewed commitments to delivering greater sustainability in the year ahead, even if some revisions may need to be made if future progress comes up short.