According to latest European Commission forecasts, the European economy is expected to grow by 0.8% in 2023 whereas the German economy is expected to shrink 0.4%. These are downward revisions from the spring forecast of an EU growth rate of 1% and a German growth rate of 0.2% for this year. There is no end in sight to the recession in Germany which began in the final quarter of 2022, although the economy is expected grow again in 2024 by 1.1%.
Sanctions against Russia owing to the invasion of Ukraine have led to high energy prices due to the need to substitute relatively cheap Russian gas and oil. In the short term, this has been possible only through higher-priced energy imports. So what was previously a major geographical advantage for German industry has now turned into a disadvantage as the country is scrambling to substitute cheap gas at what is also a time of high investment in renewables and hydrogen.
Owing to the recession in Germany, high inflation, cheap virgin polymers and low downstream demand for products, demand for recycled plastics has fallen in Germany as in the whole of Europe.
The drop in virgin polymer prices follows a decline from those high freight levels seen during the COVID pandemic because of congestion at major ports worldwide. Supply chains have since returned to normal and freight rates have duly dropped, leading to low-cost virgin plastics becoming available in the market. Manufacturers who used plastic recyclate during COVID to substitute high-priced virgin polymers are now switching back, counteracting efforts towards a circular economy in the European plastics industry.
Recyclate demand in Germany appears to have stabilized at a low level. Prices have stopped declining further for virgin polymers as well as for recyclates after falling throughout the summer. Supply and demand have both decreased, leading to stabilized prices but less turnover at lower margins.
Many manufacturers using recyclate in their production still have very high stocks. Some have stopped ordering only for one to two months while others are not taking in new raw material orders for the rest of the year in order to reduce their stocks first.
Market demand for recyclates is dependent on the downstream industry. As the building sector is weak, PVC window and pipe scrap has switched from a seller’s to a buyer’s market for the first time in years given an oversupply of PVC scrap. A similar situation can be seen with PP recyclates in general; the PP fraction 324 from yellow bag sorting is also in oversupply owing to low demand for consumer products such as flowers, and therefore flowerpots and garden furniture. Recycling yards are stopping the sorting of mixed plastic scrap from other fractions, keeping it in the substitute fuel fraction and sending it off to incineration plants.
An exception to this general downtrend is offered by the automotive industry, which recorded 28% year-on-year growth for the period from January to August 2023. However, this was still 12% below pre-COVID production levels.
German exports of plastic scrap fell sharply in the first half of 2023 - by 14% or 332,000 tons year on year, according to the German Federal Statistics Office; this represents a low for recent years, continuing the overall downtrend in scrap export volumes. Exports to other European countries such as Poland, Austria and the Netherlands were significantly lower whereas shipments to non-European countries headed sharply higher, including to Malaysia (+58% to 46,000 tons), Indonesia (+39% to 16,000 tons) and Vietnam (+30% to 11,000 tons). At least in part, this seems to reflect a small revival of pre-COVID conditions; it remains to be seen whether this will be long-lived as the EU is planning to implement ever-stronger policies on waste plastic exports.
Reflecting weak domestic demand, Germany’s plastic scrap imports decreased by 19% year on year to 214,000 tons in the first half of 2023.
The market environment for the plastics recycling industry in Germany makes it difficult to see a clear path towards a stable domestic circular economy in plastics. Continued high volatility in market prices makes long-term investments difficult, with the recent low price levels leading to the return of higher scrap exports to countries such as Malaysia and Turkey.