Economic disruption owing to the conflict in Ukraine continues unabated, with inflation at record highs. There is pressure on prices for recycled material and high energy costs are impacting margins. Transportation remains a major issue.
Growth in global trade is under pressure and 2022 is still a poisoned chalice. There are more and more bottlenecks in international supply chains owing to the continuing conflict in Ukraine and China’s zero-COVID policy. The sanctions imposed on Russia have shaken the foundations of gas supply to Europe, with disastrous consequences. It is causing inflation to head ever higher, leaving consumers with less and less to spend; a global recession is expected in the second half of this year.
All these uncertainties are putting pressure on the prices of recycled raw materials in Europe. Whereas prices achieved record highs last year, we are now looking at substantial price drops, with polypropylene being hit hardest. Supply of PP waste has risen over the past month, in sharp contrast with the previous period when recyclers had to accept any price increase in order to obtain any material at all for their production operations.
Prices for LDPE are stable and demand is still satisfactory. But HDPE is another story: this material is under pressure, albeit to a lesser extent than PP. Availability of these materials has improved significantly, but that automatically produces price pressure. For the moment, HIPS and ABS are not affected and prices for these materials are still fairly level. Despite recent price drops, plastics recyclers can look back on an extremely good first six months of the year.
Nearly everyone is taking account of the fact that the market will cool off during the last six months of 2022, and the first signs of this cooling are starting to emerge. End-processors are cautious about ordering raw materials and are using up old stock rather than creating any more inventory. At the same time, manufacturers are suspending weekend production as a result of disappointing order levels.
In addition to price drops and a more negative outlook for the second half of this year, our industry is still facing enormously high energy costs that are increasingly difficult to pass on in sales prices, while personnel shortages are leading to substantial increases in salary costs. These two factors are putting margins under pressure and companies are expected to be less profitable over the coming period.
With all the geopolitical tensions and issues, it is extremely difficult to transport goods. The crippling of supply chains has a cost-increasing impact on the price of raw materials and goods, which in turn drives inflation even higher. This applies both to overseas and domestic transportation, neither of which is expected to improve in the short term.