Iran Conflict Drives Plastics Rollercoaster

Renewed fighting between the US and Iran in the Middle East could have massive repercussions for the recovered plastic sector, according to a senior figure in the global market. Writing in BIR’s latest Mirror market report, plastics division president Henk Alssema reflects that the recent substantial fall in crude oil prices has been reversed and virgin polymer prices have also started to climb again, which usually means manufacturers turn to secondary plastics. That in turn boosts the recycling industry.

Volatility in the Strait of Hormuz threatens the market going forward. The developments come at a time of softening demand, as the holiday season prompts plastics processors to reduce production levels while buyers maintain significant inventories as a precaution against potential supply disruptions arising from Middle East conflict. Trading activity has slowed, while competitively priced imported materials continue to exert pressure on the European market.

On the plus side, strong demand experienced over the past few months was helping recyclers handle the traditionally slower summer period. The key questions now are what direction the Iran conflict will take and how the market will develop after the holiday season. If inventories continue to decline throughout August and industrial activity resumes as expected after the summer break, demand could recover during September.

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Structural oversupply of virgin resin

For fellow division board member Max Craipeau, the Middle East conflict clarifies the diagnosis: the plastic recycling crisis is driven not by imported recycled material but by ‘the structural oversupply of virgin resin – the product of abundant fossil feedstock and years of aggressive petrochemical expansion, above all in China.’ Craipeau writes of an imbalance of scale with the annual capacity of Europe’s virgin PET industry of 2.6 million tonnes compared to China’s PET output of some 17.5 million tonnes.

Overcapacity of that magnitude sets the global price floor for virgin PET, HDPE and PP. Recyclates, produced through a fundamentally different and more costly industrial process, are dragged down with it. It is a difficult environment for recyclers, yet the alternative is an economy that continues to rely on fossil fuels rather than a circular system. Craipeau argues for higher targets for recycled content in new plastic products. ‘Europe is no longer the benchmark. The EU’s 25% requirement for beverage bottles was a necessary first step, but India is moving towards 40% recycled content for PET food packaging while Nigeria has announced a framework reaching 50% by 2030.’

Reviewing the geopolitical situation, he concludes: ‘The lesson of the Hormuz episode fits into a single sentence: at rational virgin prices, recycling operates sustainably; against structural overcapacity, it cannot compete on price alone.’