2021 PE and Recycled PE Substitution Analysis
Recycled PE is a substitute for PE. Because of their similar downstream application, there is a certain substitution relationship between them (except for food and medicine fields). In the meantime, their consumption structures are also similar.
As can be seen from the above chart, the price trend of recycled PE followed the price trend of virgin PE. The highest spread between recycled PE and virgin PE prices reached RMB 2,612/mt, while the lowest price spread was RMB -130/mt. There is a price difference between the price of PE and recycled PE, and the reasonable range of the spread is about RMB 1,000-1,500/mt. The price spread is an important factor affecting the purchase of users. Generally speaking, when the price spread is large, users will purchase recycled PE because of cost savings. When the price spread is small, users will mostly purchase PE for product performance and cost-effectiveness. In actual production, downstream plants can choose different feedstock according to product characteristics. In some areas, recycled PE has a certain price advantage, but in more production areas, virgin PE is irreplaceable.
In 2021, the overall price spread between virgin PE and recycled PE shows an N-shaped trend. The price spread between the two has expanded compared with previous years. The high value during the year appeared at the beginning of October at RMB 2,612/mt, and the low value during the year appeared at the beginning of June at RMB 880/mt. From January to early March, the price of PE increased significantly, driven by the tight supply and rising futures market. Thus, the spread between virgin PE and recycled PE expanded, leading to increasing inquiries for recycled. From the middle of March to the middle of June, the supply increased as some newly added units were put into production. However, the downstream demand saw limited changes. PE prices entered the downward channel. In H2 June, the spread between virgin PE and recycled PE reached annual lows, thus the demand for virgin PE increased somewhat. From July to August, the price spread gradually widened, arousing the buying appetites for recycled PE. From September to the middle of October, the downstream demand recovered in the peak season. Besides, the spread exceeded the rational range and reached RMB 2,612/mt. Users’ buying sentiment for recycled PE increased. In H2 October, the spread between virgin PE and recycled PE gradually returned to the rational level.
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