The linked Covestro headline from today's ESG & Climate report is a reminder that the chemicals and polymer makers are dealing with more than just recycling and product lifecycle management. Customers are equally focused on the carbon footprint of the products they buy and the green hydrogen move by Covestro (assuming that affordable green hydrogen is possible) would replace hydrogen made from fossil fuels and replace other fuels for heat in some cases. Germany has some considerable issues with decarbonizing, as the blue hydrogen route will be challenging in a country that will likely not allow onshore CCS. Covestro and others may have little choice but to buy green hydrogen and/or green power, even if supplies come up short of plan and costs are higher as a result. This is a good illustration of why we believe that the right policies in the US could drive some additional competitive edge while meeting climate objectives. Cheap hydrocarbons coupled with cheap CCS may only be matched in some parts of the Middle East.
The chart below on recycling progress by the major FMCG companies is timely as it bumps into plenty of “national recycling day” headlines which include as many stories around recycling polymers into new applications as stories about like for like recycling. The more polymer that moves through collection and sorting and into roadbeds or composite particleboard replacement, etc., the less there is available for the FMCG companies to meet recycling goals. We see this as a major opportunity for the renewable polymer makers, but it is unlikely that there will be enough renewable-based polymers available to close the 2025 gap for most of the companies listed below. What is likely, in our view, is that the packagers will embrace chemical recycling as a way to increase their recycled content and will strike very specific deals with those able to show a chain of custody from collection through new polymer production.
The Avient chart around where brand owners sit with recycled content versus 2025 goals is quite scary. There are not enough initiatives collectively to address the needs, as the demand extends beyond the 13 brand owners listed. In our ESG and climate report yesterday we talked about the challenges with recycled PET and the complicating factor around recycled material heading into different applications, and consequently not being available to bottlers. We also have the issue of PET bottle pre-form capacity being overweight in Asia versus PET bottle demand and waste – setting up an imbalance between where the waste is and where the recycled material is needed. The gaps in the Avient chart and the slow and challenging recycling progress lead to a couple of conclusions. The first is that recycled material is likely going to rise in value versus virgin material – simply because of competition and the PR, IR, Social cost of not meeting targets for many brand owners. The second conclusion is that the renewably sourced polymer producers have a huge potential opportunity to step in and fill the gap. The challenge will be the ability to have enough capacity up and running to meet demand in 2025.
