COVID-19 is hurting demand for PET, report says

COVID-19 has significantly changed the nature of consumer behaviour, increasing the strain on supply chains and wiping out traditional seasonal demand patterns – which means that the pandemic is playing havoc with polyethylene terephthalate (PET), the most commonly used plastic to package bottled water, soft drinks, and food products.

According to a new report from Susan Mair, petrochemical analyst at Houston-based market research firm ICIS, demand for PET has traditionally followed a cyclical, fairly predictable pattern. “PET resin demand typically exhibits seasonal patterns,” Mair said. “In Q2 as temperatures begin to rise and the European holiday season begins, the demand for PET resin increases. Bottled water and soft drink sales increase in line with warm, dry weather and convertors will stock up on resin ahead of the expected peak in sales. Demand is often weakest in Q1 when temperatures are at their lowest and the demand from the festive period wanes.”

But the pandemic is changing this predictable PET pattern. “Many buyers’ inventories were high and demand for domestic material was lacking, with many producers forced to reduce operating rates,” Mair said. “2020 is guaranteed to be a turbulent year for most markets and PET resin is not exempt.”

Q1 trade flows into Europe are already indicative of the disruption caused by COVID-19. “Exports from Asia into Europe are far below those of 2019,” Mair said. “This cannot be solely attributed to logistics and shipping disruption in Asia but also the fact that the price spread over Asian PET resin has continued to reduce over the last 12 months.” Although virgin PET resin prices remain at all-time lows, Mair writes, it does appear that European producers are seeing some positive repercussions as demand returns for domestic production as buyers look to shorten their supply chains, removing a degree of uncertainty in this volatile market.

“Lockdowns were widely implemented across Europe in March as the coronavirus pandemic worsened,” Mair said. “The initial implication for PET resin was a spike in demand as populations stocked up on food, beverages and household products. PET resin price initially remained afloat against a backdrop of crashing crude oil and plummeting feedstock costs.”

By April, Mair notes, lockdowns and restrictions remained in place for the majority of Europe and the demand for PET resin had dampened. “Populations were restricted, not only to their country of residence but their own homes,” she said. “The growth in tourism which had seen a positive start to the year had halted. Countries closed their borders and enforced quarantine became a reality for any border crossings. The price decline in the feedstocks and the weakened downstream demand now filtered into the European PET resin price.”

Uncertainty surrounding summer vacations and the steep drop in air travel will further exacerbate the decline in consumption of PET-packaged products, Mair said. “With tourism being significantly reduced since mid-March it is almost inevitable that there will be no ‘normal’ holiday season in 2020,” she said. “PET resin demand is expected to be reduced year on year in tourist heavy areas in 2020.”

According to Mair, countries that can expect to see some sizeable demand return as holidays are taken in the home country as opposed to outside their borders include the Netherlands, Germany, Belgium and Denmark. “In contrast the countries which usually attract substantial foreign tourism, and will not in 2020 include predictably Spain, Italy, Greece, Portugal, Croatia, and Malta,” she said. “Demand for PET resin in these countries is expected to decline versus 2019.”

And this will have an impact on PET recycling rates, Mair notes. “Any decline in beverage consumption is a reduction in bottles available for collection,” Mair said. Meanwhile, people staying near to home results in elevated domestic consumption. “This suggests that those countries which operate collection systems that typically produce the highest collection rates will increase the volumes collected, such as Germany and those with deposit return schemes,” Mair said.