So, overall, spreads are better there as well as — on a full year basis, helping this year and will, of course, build momentum as volume comes back with better margin as we go into next year.
Frank Mitsch: Got you. Thanks so much.
Operator: We now turn to Aleksey Yefremov with KeyCorp. Your line is open.
Aleksey Yefremov: Thanks and good morning everyone. You discussed lower conversions of MoUs to definitive agreements in France. Can you just elaborate on that? Is it just in France or is it related to your second plant in the US as well? And is this really related to demand uncertainty or price volatility in the plastics markets? What’s happening there?
Mark Costa: I just want to — you broke up a little bit, Aleksey, I just want to make sure I understood the question. You’re asking what’s happening with the pace of contracting in France given the current market conditions? Was that the question?
Aleksey Yefremov: Yes, it was. Apologies. You’re talking about MoU conversions to definitive agreements. Could you just elaborate on what’s going on there?
Mark Costa: Yes, sure. So, first of all, the commitment and desire to get recycled content and products remains very strong. So, when you look at the specialty businesses we’re in right now from our Kingsport plant, the demand commitment, which is global, not just in North America but across the world for products and durables, cosmetics, packaging, for recycled content, remains very strong. We’ve got 70% of our potential output, where customers are very committed, as you saw in the prepared remarks. When it comes to these PET or textile contracts that are the long-term sort of take-or-pay kind of structures for those markets, like the Pepsi contract. We are having great engagement and good discussions with a number of companies about those contracts.
Like Pepsi, it takes a long time to negotiate these. They’re very complicated contracts. And the current market conditions, I would say, are sort of slowing those discussions down a little bit. So, if you’re looking at the PET market, whether it’s VPET or RPET, those market prices have come off in a pretty significant way, which is purely just the story of everything else in the current macro, right? Demand is off and beverages — people are downscaling to sort of cheaper water bottles that have less material. A lot of that RPET also goes into carpet and textiles where demand is down 20%. So, that’s just a temporary thing. The key thing to keep in mind in these contracts is we are targeting applications within these brands where mechanical recycling doesn’t really work.
So, if they want recycled content in those applications, they’re going to have to use chemical recycling because the performance requirements in a variety of different technical aspects, the mechanical is just not going to actually work. And I’m not going to get into details of that because I think that’s a competitive advantage for us given our deep polyester expertise relative to other companies out there, but that’s definitely a key part of how we’re going to win. The second part is the degradation of polymer is already becoming clear in some markets, that you can’t mechanically get to 100% recycled content. So while regulatory requirements may be only 25% in 2025, a lot of brands have set targets for some key applications to be 100% recycled content.
And to maintain quality, they’re not going to be able to do that with mechanical. So, we feel very confident that these contracts will get resolved, and we’re going to get them in place. The engagement is high. And the regulatory requirements, especially in Europe, are going to require people to have recycled content. And when you look at the market situation there, right now only about 12.5% of PET is sort of recycled. Mechanical industry does not have the ability to double that capacity between now and 2025 when that number needs to be 25% recycled content or you can’t put the packages on the shelf. So, we feel like we’re in a good position, and working really productively with our customers and we’re aiming to have those contracts done by the end of the year.
