Brazil's PET Recycling Industry Struggles with Low Margins and Insufficient Supply

Price Trends and Supply Issues

As of August 22, Platts assessed post-consumer PET clear bottle bales at Real 5.20/kg DDP São Paulo, up Real 0.70/kg since August 12. Recycled PET clear PET flakes were assessed at Real 7.50/kg DDP São Paulo, reflecting a Real 0.50/kg increase since August 12, highlighting the pressure on recyclers' margins.

Impact of Low Supply on Margins

Increasing consumer awareness and evolving regulations are pushing brand owners and fast-moving consumer goods companies to boost post-consumer content in their packaging. However, scrap collection has not kept pace with recyclers' demand. Additionally, other applications for post-consumer resin are driving steady demand and higher scrap prices.

The competition for post-consumer PET bottle bales has intensified since early 2024, raising prices. The supply shortage has become so severe that even green-colored material, which previously sold at a discount of about 20%, is now trading at parity with clear material.

Platts last assessed post-consumer PET green bottle bales at Real 5.20/kg DDP São Paulo on August 21, with recycled PET green flakes at Real 7.50/kg DDP São Paulo. A recycler noted that to secure materials and meet customer needs, their focus has shifted from negotiating prices to ensuring timely material procurement.

A bale seller indicated that margins have not improved with rising prices, as the cost of scrap is also increasing. Recyclers often cannot pass on price increases to downstream PET flakes immediately because prices are based on the previous month's feedstock prices, and the material competes with virgin PET resin.

Current Industry Dynamics

Amid weak margins, several smaller recycling companies have gone out of business, with larger players consolidating their positions. Some recyclers are turning to importing dirty PET flakes, cleaning, and processing them, but volumes remain insufficient.

Currently, Brazil’s PET recycling industry operates at around 70% of its total installed capacity of 500,000 metric tons per year, indicating low capacity utilization.

Competitiveness with Virgin PET Resin

Despite rising feedstock costs, the prices for downstream PET flakes are capped by the price of virgin PET resin. In the absence of mandates for post-consumer recycled content, buyers often switch to cheaper virgin PET resin once PET flake prices exceed a certain threshold, making virgin PET resin prices a key factor in the recycling market.

Brazil became a net importer of virgin PET resin in 2023, with inexpensive material primarily from Southeast Asia. Brazil imported 71,549 metric tons of virgin PET resin in 2023, mainly from Malaysia, Oman, and Vietnam, according to data from the Ministry of Development and Foreign Trade.

Although logistical issues in the global shipping market, such as attacks on tankers in the Red Sea, have affected resin prices, virgin PET resin remains competitive against recycled resin in Brazil, leading marginal buyers to choose the more cost-effective option and exerting downward pressure on Brazilian PET flake prices.

To protect the market in Brazil and strengthen national production, the Brazilian Chemical Industry Association has requested that the Brazilian Foreign Trade Chamber increase import tariffs for PET from 12.6% to 20%. A decision on this request is expected by late August or early September.

Recycling Rates and Market Trends

As demand for post-consumer PET in Brazil outpaces that for virgin materials, driven by growing cultural awareness and a greater appreciation for sustainable packaging, recycling volumes have shown notable improvement.

PET is the most recycled plastic worldwide, and Brazil’s recycling rates are among the highest globally. In 2021, Brazil achieved a 56.4% recycling rate for PET packaging, according to the Brazilian Association of PET Industry (Abipet). The annual growth rate of recycled PET volume from 2016 to 2021 was approximately 8%.

Furthermore, the 15.4% increase in recycled PET packaging volumes from 2019 to 2021 surpassed the 12.4% growth in virgin PET resin consumption during the same period. Recycled materials were used in various applications: 29% for preforms or bottles, 24% in textiles, 17% in reels and thermoforming, 13% in chemicals, and 11% in strapping tapes.

The share of preforms and bottles grew from 24% in 2019, as brand owners increased recycled content in their packaging to meet sustainability goals and rising consumer awareness.

The Brazilian PET recycling industry faces significant challenges, and current conditions suggest that relief is unlikely in the near to medium term.