Chloe: Hello, everyone, and welcome to this "Chemicals Conversation" podcast for Argus Recycled Polymers brought to you by Argus Media. I am Chloe Kinner, and I'm the editor for the Argus Recycled Polymers reports, and I'm joined today by Antonello Ciotti, the president of PETCORE EUROPE.
Antonello: Hi, everybody.
Chloe: Antonello, welcome back, and thank you again for joining us. We're really looking forward to joining you at the PETCORE EUROPE Annual Conference that's held in Brussels over the 4th and 5th of February. But before that, we really wanted to take this opportunity, as we did last year, to take a look back on the previous year and, more importantly, hear about your outlook for the year ahead for recycled PET and the virgin PET market in Europe.
So, for 2024, it was another challenging year for the European PET market and particularly the recycling markets in Europe as a whole. Maybe you could give us a little bit of a summary of how you saw things.
Antonello: Yeah, as you said, 2024 was a sort of peculiar year. We were expecting somehow to come to an end of the discussion on the PPWR, keeping in mind that by January '25—so now—the SUP, the Single-Use Plastic Directive, is starting to have its own effects. But what is the problem? The problem is that the two legislations are not aligned with each other in the sense that we see the SUPD talking—since it's a directive, by the way, this was expected—the SUP is talking to each member state, applying specific targets as average for the country, while the PPWR is talking directly to the brands. So, it's clear that the targets that you have in the SUP are not aligned, or not totally aligned, with the targets that we have in the PPWR. And they want to be more specific.
For example, regarding the 25% recycling content, apart the fact that we don't know yet if chemical recycling is counted in the recycling content, while the SUP is asking to have an average 25% minimum recycling content in the bottle per country, in the PPWR, that is a regulation. And as such implemented as it is, there is other brands that are entitled, that they are forced to reach the minimum target by size of the bottle. So, you have 25% in all the half-liter bottle, in all the one-liter bottles, and so on. You cannot somehow blend the size of the bottles and to have 25% in general applied as the recycling content. You need to be very specific.
So, this is what's happening from the legislation point of view, and the situation is still cloudy. Also, by the way, because if you don't achieve as a singular brand the 25% target, at present, there is no penalty for the ones that do not behave. So, from one side, there is a strong push. On the other side, there is no penalty. By applying the 25% minimum, you have extra costs. And that is a little bit in a very cloudy situation, as I said. Because the situation that there is no penalty, it then impacting how the brands are actually adding the 25%.
And we have to go back. When in 2019 the SUP was approved, the main target was to increase collection in Europe and the usage of recycled content in Europe. What's happening now with this, let's say, hazy situation where we are in? It is happening that brands are reluctant to add because there is this gap in terms of cost. And, second, there is an opening from the brands of a huge influx, imports of this recycled material from outside of Europe. And this, we come to a structural problem that Europe has.
If we compare the cost of collection in Europe with the cost of collection we have in Egypt, in India, in China, and in many other countries of the Far East, there is an order of 10 times that is differentiated. The European cost is around €500 per ton, and the cost in this other country is less than €50. So, since the collection is the first step, the first brick that you have in the construction of the total cost of recycling material, it is clear that European recyclers cannot compete with the material that is produced outside of Europe, because even with the most sophisticated technology, they cannot close the gap between the collection costs outside of Europe and the collection costs that is in Europe. So, this is the reason why markets was, in a way, requiring...the demand was much lower and is much lower than expected. And the demand is mainly satisfied by material coming from outside of Europe.
Chloe: Okay, interesting, and I know you contributed to a Q&A that we've published in the "Recycled Polymers" report this week as well. And in that, you kind of shared your views around these topics and discussed how the lack of clarity in terms of the penalties around the legislation is, kind of, impacting, maybe limiting the impact of that legislation really in terms of demand for the market as well. I wondered if you had any kind of idea on what the possibilities would be for consequences or penalties if those targets aren't achieved. Is there any kind of direction that's been given from the commission?
Antonello: The commission clearly is going to open a procedure of inflection versus the countries, [inaudible 00:06:57] countries, that are not matching the target. But what we are trying to propose to the commission is, first of all, a proper harmonization between the SUP and the PPWR. And second, we are cooperating with the JRC, that is the technical arm of the commission, to define a proper procedure, a proper definition, and proper characterization of the products that should come from outside of Europe, playing the same level field. Otherwise, we give too much disadvantage to the European manufacturers.
And mainly, we are focusing on two of the main requests that we have in Europe. So, the first one is that the bottles should come from a differentiated collection. Second, through the chain of custody, we should be able to prove that somehow the collection is focusing on 95% of bottles that are coming from waste that were managed, were produced from food content products.
Chloe: Okay, and talking about those extra collection costs for Europe, maybe can we delve into that a little bit deeper? Could you try and explain why the costs are so much higher for collection in Europe? Is there a reason for that?
Antonello: Yes. Yes, the reason is that we do not have street pickers that basically go around and try to pick whatever waste has value, as is happening in certain countries. So, in Europe, we don't have street pickers, as it happens to be the case outside of Europe, where these people extremely poor that goes around in the streets and try to grab whatever has value from wastes. On the contrary, here we have multi-utility companies that have their own organization that are sending their own trucks that are collecting this waste. The waste then is sorted out by specialized sorting centers. Everything is more automized but everything is also more expensive.
Chloe: Okay, that makes sense. And do you think that for the importers, having to comply with the EU standards and the certifications to the same level as what the European recyclers are, will this increase the costs for importers and help level the playing field at all?
Antonello: In a way, yes, the more that equalize the cost, what we are aiming at is to have the same rules respected everywhere. So, separate collection also there and proper sorting of bottles to be totally sure that what you're collecting has been containing only food material. This and we are very much concerned about the impact on NIAS, non-intended added substances, by having bottles that do not come from this kind of collections.
Chloe: Okay, okay. And is there anything in your opinion that can be done to bring the European costs down or support the European recyclers a little bit more?
Antonello: To reduce costs in Europe is very difficult. And this is a structural question that we have for the future. We see somehow that the new administration in the States seems to take a distance from the Green Deal. If this happens, the situation for Europe will become even worse because we cannot think that only Europe is going strongly and quickly versus the Green Deal. We have to be very much harmonized on a global level. Europe cannot support alone the burden of a Green Deal. Otherwise, it will push the European manufacturers to delocalize outside of Europe. The situation, unfortunately, is clear.
Chloe: And for this year in particular, with the implementation of the Single-Use Plastics Directive coming in, and we're heading towards the Packaging and Packaging Waste Regulation in 2030 as well, we're hearing various announcements of deposit return schemes coming into play and new extended producer responsibility policies as well. How do you think these will impact the market? Is that going to help us towards these goals?
Antonello: Sure. First of all, let me say that we are in favor of whatever means is used that could increase collection, because you don't have recycling if you don't have collection. So, whatever comes, we are supporting it.
On DRS, I have a concern in the sense that to apply DRS when you start from scratch is something. When you start from halfway of a target, it's something different. Let me be more clear on this case.
In Germany, we have been extremely successful because we started in the '90s. And since then, the DRS has been accepted and was a fantastic process that allowed the market to collect more than 90%. So, well done.
Now, let's go to the schema. Let's take the situation of Italy. In Italy, with the curbside, we already reached 75% in 2024. So, we have good chances to reach the target in 2025. But curbside has a certain cost. The DRS alone is expected only to be an investment required in terms of DRS machines, proper maintenance, proper collection, increasing the cost. And just to give a figure, only by having half DRS machines in the country, you need to invest roughly €2 billion. So, it's clear that DRS will help in the case of Italy to increase by roughly 15 percentage points the collection but will have a cost of €2 billion.
Chloe: Big cost.
Antonello: So, does this make sense at this point to invest so much to gain 15% or do we have some other means? It's clear that we leave up to the industry, we leave up to the politicians to take the decisions, but it is our role to highlight the concerns that we have. And this is, for countries like Italy and France, a very big concern. We will see now how Spain is going to cope with these requests because lately the Madrid parliament has signed a law, a royal decree, by which it's forcing that in almost 18 months, that will be an extremely short time, also Spain will move to DRS.
Chloe: And it will be challenging particularly for recyclers, I think, to pass on those feedstock costs from increased collection.
Antonello: Correct. Imagine now there is already quite a wide gap between Europe and whatever is outside of Europe. We have to pay attention that this gap is not increasing even more by increasing the cost of collection.
Chloe: And as well, I think the gap with virgin PET also needs to be addressed because we've seen, as the virgin prices came down at the end of last year and the recycle prices stayed relatively stable, a huge differentiation between recycled PET flake or PET food grade and the virgin market. And in some cases outside of the bottle sector, some substitution back to virgin for cost-saving activities. It's a challenging economic time at the moment.
Antonello: It is. And as you said, Chloe, this is coming directly from the cost structure of virgin, the cost structure of recycling. Virgin is mainly, let's say, linked to the oil price. And we are living in an era where oil prices, all in all, is quite cheap. While on recycling, you are basing your costs on fixed costs because the cost of collection is fixed, the impact of oil prices is minimal, and also the sorting cost somehow is a sort of fixed cost because even there, even if in this case, the cost of energy has a major impact but all in all, the combination of the two are somehow delinked from the fluctuation of the oil prices.
Chloe: And I also just wanted to ask you as well on some sectors outside of the bottle market, if possible, and to see if you anticipate any developments in maybe the tray-to-tray market or fiber recycling at all. What's your outlook for the coming years?
Antonello: To reply to this question that is very relevant is not so easy because a lot depends on how institutions are going to reply to the demands coming from us and how quick are we going to take action. But it's clear that, at present, trays are moving back as much as they can to virgin because the cost, as you said, is roughly 30% lower.
And the same is happening for the textile part. Keep in mind that textiles are suffering also another impact that is linked somehow to SUP. Through SUP, the brands are requiring to have a first right of refusal on the bottle collected. But at this point, if they have a first right of refusal, the textile, the trays producer are late in the list, are second in the list, and they run the risk of not finding any volume available for them, or if they find it, at a very high price.
So, also this should be considered by the institution. We need to have a sort of holistic view because if you look only at two bottlers, we run the risk of forgetting or pushing out of business, in terms of recycle, trays and textiles. By the way, since the textile is next in terms of target from the institutions in terms of EPR schemes, we have opened up PETCORE to the textile applications in the sense PETCORE will maintain a strong focus on PET packaging but is opening up also a branch on PET textile because at the end of the day, we are talking about polyester. And the commission, with us, is talking about polyester in general, not only PET packaging.
Chloe: Yeah, of course. And as that supply gets more directed into bottle-to-bottle, exactly as you're saying, there's going to need to be some outlets for material that is being downgraded, so possibly into other applications, but also those maybe closing the loop on those materials as well, so looking for textile-to-textile or for tray-to-tray.
Antonello: Correct. Exactly what you're saying, Chloe. I cannot add anything. EPR schemes are needed also in textile. So, if you want circularity, the first thing is to have an EPR system because the EPR system can grant the proper collection. If instead, you leave somehow to the market, this is coming very slowly and generally not at the target that are expected in terms of time and volume from institutions.
Chloe: And another important part of the puzzle, I guess, is the chemical recycling, and you kind of touched on this a little bit earlier and a little bit in the Q&A that we published as well. And I just wondered for PET depolymerization, how does the current economic kind of atmosphere affect the development of the technology? And are you seeing any further challenges to the scaling up of the technologies to commercial scale?
Antonello: Let me start with a bit of historical reference. The company I represent introduced a grade containing chemical recycling, added recycling content in 2009, so 15 years ago. Theoretically, in practice, this technology is considered by the Commission as novel technology. So, this tells how slow does the politicians react to the industry. We have been on the market since 15 years. The technology used is considered novel technology.
And the situation is so critical for us that we even wrote to the chairman or the president of the EU commission, Ursula von der Leyen, requiring some support because we are discussing about how to position these new technologies. But we don't know yet when and how this will be approved, regardless the increasing number of data supplied and the fact that some large companies were ready to invest. I just mentioned Eastman in France with an investment of roughly €2 billion but are postponing the investment because there is no clarity. You run the risk of investing a lot, producing something, then have no market if this doesn't work.
The industry needs clarity, needs fast decision. And this is one of the reason why we're inviting at our conference on the 4th and 5th of February, four DGs. We have DG GROW, DG Trade, DG ENV, and DG SANTE, just to hear from them how we can remove the blocks that we have in our activities.
Chloe: Yeah, that communication with the EU Commission is really, really key for the market, isn't it?
Antonello: It's key also because the resources that the Commission has are not endless in the sense that they need...now there is a clear lack of resources, and they have to refer to the industry to get some clarity in some of the decision-making because, as you say in English, the devil is in the details. If you don't look, especially at the technical detail, you run the risk of causing a lot of troubles.
Chloe: Yeah. Yeah. I guess finally, I wanted to see if you could maybe summarize a little bit on your outlook for what the rest of the year looks like in 2025 for PET. It doesn't seem like you have very high hopes. There's obviously more headwinds that are coming, and it's still a challenging situation.
Antonello: Well, you said I am a very positive person, so I hope that through the interactions that we have with the institution, we would be able to move fast in the direction of having harmonization between the different legislation we have, and that through also the clear positioning of the Draghi report, the Commission could take fast actions to protect European manufacturers.
Chloe: Great. Well, that's fantastic. And thank you so much for your time, Antonello. Unfortunately, even though...
Antonello: Oh, thanks to you, Chloe.
Chloe: ...there's still lots to discuss, that's all we've got time for today. But we really look forward to joining you and continuing our discussions at the PETCORE event in February. So, thank you again.
Antonello: Thanks so much for all your questions, and I hope to see many of the value chain actors at our conference in Brussels.
Chloe: Great. Thank you, everyone, so much for listening. We hope you found it useful and insightful. And to find out more about Argus Recycled Polymers and any of the other Argus chemical products, please visit us at chemicals.
