Vietnam's plastic-circularity squeeze: why feedstock, not capacity, is the binding constraint

Two policy moves arrive in Vietnam within the same window, and they pull in opposite directions. From 2026 the country legislates recycled-content demand up — through a consolidated extended-producer-responsibility regime, single-use bans, and an accelerated Hanoi timeline. At almost the same moment the European Union switches a slice of imported feedstock off, banning plastic-waste exports to non-OECD countries from 21 November 2026.¹ Demand rises; one channel of supply falls. The pressure does not spread evenly across the value chain. It concentrates on the part that was already the tightest: securing consistent, high-quality, cost-effective plastic-waste feedstock.

That is the market view. Capacity is not the number that decides outcomes in South East Asia plastic circularity — feedstock is. Bain & Company, in its 2025 brief Building a Resilient Plastic Circularity Framework in Southeast Asia, names securing supply as the universal binding constraint, and the economics underneath it are unforgiving.² Orofante, a family-office investment group deploying its own balance sheet in SE Asia plastic circularity, holds the same read: the durable value sits at the feedstock and quality layer, not in the headline plant count. We state it as a market view, not a recommendation.

The 2026 demand-and-supply pincer

Vietnam's demand side is being written into law on a defined schedule. The country's EPR regime rests on the Law on Environmental Protection 2020 (effective 1 January 2022), with the implementing detail first set by Decree 08/2022/ND-CP.³ On 1 April 2026 the government issued Decree 110/2026/ND-CP, which took effect on 25 May 2026 and consolidated the EPR provisions previously spread across Decree 08/2022 and its amendments into a single framework.⁴ Producers and importers must either recycle a mandatory proportion of the packaging they place on the market or pay into the Vietnam Environment Protection Fund. Packaging recycling rates run roughly 10–22% by material, and each rate can rise by up to ten percentage points every three years, with the first adjustment due around 2029.⁵ The ratchet only turns one way.

Around that core sit the bans. From 1 January 2026 Vietnam prohibits the production and import of thin non-biodegradable bags below 50cm × 50cm with single-layer film under 50 microns; a fuller halt on single-use plastics and non-biodegradable packaging follows after 31 December 2030, against a national vision of zero plastic waste by 2050.⁶ Hanoi runs ahead of the national clock. Single-use plastics are banned in hotels and tourist accommodation from 1 January 2026; markets and convenience stores must stop giving out free non-biodegradable bags from 1 January 2027 and cease single-use plastic items from 1 January 2028, after a pilot inside Ring Road 1 that began in October 2025.⁷ Demand for recycled and recyclable material is being manufactured by statute, on dates that are already fixed.

The supply side moves the other way. Under Regulation (EU) 2024/1157, the revised Waste Shipment Regulation in force since 20 May 2024, exports of all plastic waste from the EU to non-OECD countries are banned from 21 November 2026 for at least two and a half years, until at least 21 May 2029.¹ By the Commission's 21 February 2025 deadline, 24 non-OECD countries — Vietnam among them — had requested eligibility to import non-hazardous EU waste, but the plastic-waste ban applies regardless of that list.⁸ Bain estimates the ban could remove around 140 kilotons a year of imported waste feeding Malaysia and Vietnam combined.⁹ The chart above sets the 2026 demand mandates — their dates and the products they hit — against the EU's November 2026 import cut-off; the two forces converge on the one input that was always scarce, secured domestic feedstock.

Demand is being manufactured by statute, on dates that are already fixed. One channel of supply is being switched off on a date that is equally fixed. What sits between them is feedstock.

Why value follows quality and certification

If feedstock is the constraint, the next question is where margin accrues once you have it. It is not whoever recycles. It is those who pair upgrading-to-spec output with credible certification. Decree 110/2026 makes the point in plain regulatory language: it tightens the mandatory recycling process for plastic packaging by excluding plastic flakes as a valid final recycled product.¹⁰ A self-organising recycler can no longer satisfy the obligation by producing flake; the output standard has moved up the chain. Quality is now the gate.

The same logic governs chemical, or advanced, recycling — the pyrolysis route that turns mixed plastics into oil. Raw pyrolysis oil is not a clean drop-in for the naphtha that steam crackers run on. A 2023 peer-reviewed study found PP-derived pyrolysis oil is largely cyclic olefins with a bromine number of 85–304, against light naphtha's value of roughly 1, and concluded that this compositional gap prevents the oil being used directly as a naphtha substitute.¹¹ Fed untreated into a cracker, it risks excessive coke and fouling. Raw, uncertified output therefore sits at the low-value fuel-blendstock end of the market. The petrochemical-feedstock premium requires two things together: upgrading the oil to specification, and certifying its chain of custody.

That certification is ISCC PLUS, the de facto chain-of-custody standard for circular feedstock. Without it, pyrolysis oil is fuel; with it, the same oil becomes certified-circular feedstock carrying a verified recycled-content claim that can travel downstream to a brand owner's finished product, typically under a mass-balance accounting method.¹² Policy is now reinforcing that premium. On 6 February 2026 EU member states approved an implementing decision under the Single-Use Plastics Directive that, for the first time, lets chemically recycled content count toward recycled-content targets via a mass-balance approach with fuel-use-excluded allocation, with the scope reduced to PET bottles.¹³ The precise variant chosen is itself a margin lever: the looser the fuel-use treatment, the more recycled-content credit a tonne of waste generates, and the more valuable the resulting claim. Independent pricing confirms the spread is real. When ICIS launched the first independent pyrolysis-oil price indexes, it priced three grades — upgraded naphtha-substitute (highest), non-upgraded (middle), and tyre-derived (lowest) — and was explicit that the naphtha-substitute price does not track naphtha; the premium reflects tight supply, circular pull, and certification.¹⁴ Recycled-material spreads are their own market. They should never be modelled off a virgin naphtha or virgin-PET curve.

The recycling rate by polymer shows where the quality gradient already bites hardest. The chart below sets the three markets side by side for 2022: in Vietnam, rigid PET and HDPE recycle at around a third and PP near 10%, while flexible film languishes below 5%; Indonesia and Thailand show the same shape, with PET highest of all in Indonesia at about 50%.¹⁵ The economically valuable, well-collected, well-sorted streams are exactly the ones policy is now demanding more of. The hard fraction — flexibles, multilayer film — is where both the volume problem and the quality problem live.

Why collection is the real number

Here is the part that capacity announcements obscure. Building a plant is a financing exercise; feeding it is a logistics and economics problem that does not yield to a cheque. Bain reports that total collection and sorting costs typically run 1.5 to 2 times the raw waste price, because the material passes through multiple handling steps before it is usable — and brand owners are usually unwilling to pay premium prices despite their recycled-content pledges.¹⁶ That cost multiple is the brake on the whole system. It is why the binding constraint is feedstock, not steel in the ground.

The capture rates make the gap concrete. In major urban areas Bain puts plastic-waste capture for recycling at 8–10% in Indonesia, 15–20% in Thailand, and 20–25% in Vietnam.¹⁷ Vietnam leads its neighbours and still leaves three-quarters of urban plastic uncaptured. The 2022 mass balance is starker: Vietnam generated about 3.0 million tonnes of plastic waste, collected roughly 0.7 million tonnes for recycling, and sent some 2.3 million tonnes to landfill or incineration.¹⁸ The chart below sets Vietnam's urban capture rate against its neighbours: it leads the region, and still captures only about a fifth.

The reason is structural, not a matter of effort. Bain characterises the SE Asia value chain as highly fragmented and heavily reliant on the informal sector, especially at collection and initial sorting.¹⁹ The value-chain map below shows where the informal sector sits in the flow. Waste-pickers and small aggregators move the material, which makes the system flexible but also inconsistent in quality and hard to certify at scale — precisely the qualities Decree 110 now penalises by excluding flake. The history compounds it: China's 2018 National Sword import ban redirected global scrap into SE Asia, and Vietnam's own temporary scrap-import freeze that year pushed import-dependent recyclers into distress.²⁰ The region's recycling base was partly built on imported feedstock, which is exactly the channel the EU is now closing.

This is why imported feedstock matters more in some markets than others. In 2022 the imported share of recycled feedstock was about 52% in Malaysia, 30% in Vietnam, 24% in Indonesia, and 23% in Thailand.²¹ The chart below shows the imported share of recycled feedstock by market. Vietnam is not the most import-dependent market in the region, but with roughly a third of its recycled feedstock imported, the EU ban removes a meaningful slice at the same moment domestic demand is being mandated upward. The arithmetic of the squeeze is simply that the two movements coincide.

Building a plant is a financing exercise. Feeding it is a logistics and economics problem that does not yield to a cheque.

The strongest case against this view

The honest counter is that capacity, not feedstock, could turn out to be the binding constraint after all — because feedstock economics may simply price the plants out. The European recycling sector contracted sharply. Plastics Recyclers Europe reports that roughly 300 kilotons of mechanical recycling capacity closed in 2024, that closures through mid-2025 had already matched the full-year 2024 loss, and that close to a million tonnes of capacity has gone since 2023.²² Chemical recycling, meant to help close that gap, stalled in parallel: of around 65 European projects planned, only 18 were operational by October 2025 — about 290 kilotons against 2.8 million tonnes of announced capacity — with nine cancelled, including investments by Dow, Neste and ExxonMobil.²² Plastic Energy, the technology partner behind several flagship SE Asian and regional projects, saw its UK companies enter administration in April 2026.²³ If recyclers cannot make money at collection costs of 1.5 to 2 times the waste price while brand owners resist premiums, then the constraint that bites is viability, and more secured feedstock does not rescue an uneconomic plant.

There is a second line of attack on the demand side. Mandated targets are not the same as paid-for demand. Bain's own finding — that brand owners are reluctant to pay premiums — sits awkwardly against FMCG pledges of 20–50% recycled content.²⁴ A Bain ESG survey found nearly half of SE Asia consumers willing to pay more than a 10% premium for sustainable products, but stated willingness in a survey is not a purchase order.²⁵ And EPR allows producers to pay into the environment fund rather than recycle, which can become a compliance cost rather than a genuine demand signal for physical recycled material. The bear case is coherent: demand that does not clear at a price, against supply that is expensive to assemble, can leave both plants and feedstock stranded.

The view survives that challenge for one reason. Every one of those counter-arguments still routes through the same node. If the sector contracts, the survivors are those with the lowest-cost, most certifiable feedstock. If brand demand is soft on price, the producers who clear are those whose certified, upgraded output commands the premium that exists. The closures in Europe are themselves evidence that feedstock and quality economics — not plant count — separate the businesses that last from the ones that do not. The constraint is not disproved by the downturn; it is demonstrated by it.

Base, better and worse cases

On a base case, Vietnam's policy schedule holds broadly to its dates, domestic collection improves slowly off the 20–25% urban capture rate, and the EU ban tightens an already-tight feedstock market without triggering a collapse in plant viability. Bain's mid scenario puts SE Asia recycled-plastic penetration at 10–12% by 2030.²⁶ Value concentrates in secured, quality, certified feedstock; the premium for ISCC-certified, upgraded output widens against uncertified fuel-blendstock.

On a better case, certification clarity from the EU's 6 February 2026 mass-balance decision pulls investment into upgraded, certified output, Vietnamese collection formalises faster than expected, and brand willingness-to-pay firms up as consumer preference converts to purchase. Bain's optimistic scenario reaches 14–16% penetration by 2030.²⁶ In that world the feedstock constraint is the thing that gates who participates, and the operators who secured supply early capture disproportionate value.

On a worse case, the European-style contraction reaches SE Asia: technology-partner failures and weak offtake economics stall the build-out, brand owners decline the premium at scale, and EPR settles into a pay-to-comply equilibrium that funds little physical recycling. Bain's conservative scenario is 7–9% penetration by 2030.²⁶ Even here the constraint does not move. Scarce, viable feedstock becomes more valuable, not less, because it is the input that distinguishes the few economic operations from the many that close.

What this means and what to watch

The shape of the next three years is set by dates that already exist: Vietnam's EPR ratchet from 2026 with its first rate adjustment around 2029, Hanoi's 2026–2028 ban sequence, and the EU's 21 November 2026 export cut-off running to at least May 2029. Across all of them, the question that decides who wins is the same one Bain names and the same one Orofante watches — who has secured consistent, high-quality, cost-effective feedstock, and who can certify and upgrade it to where the premium lives. Capacity will be announced loudly. Feedstock will be secured quietly. The second number is the one that matters.

Four questions are worth holding through 2026 and 2027:

• Does Vietnamese urban collection move materially above the 20–25% capture rate, or does the informal-sector structure keep quality and certifiability low even as mandated demand rises?
• As the EU export ban bites from November 2026, does the lost ~140 kt/yr of imported feedstock get replaced by formalised domestic collection — or does it simply tighten an already-binding constraint and push up the price of secured supply?
• Does the premium for ISCC-certified, upgraded output widen against uncertified fuel-blendstock, confirming that value follows quality and certification rather than tonnage?
• Does the European recycling contraction spread to SE Asia through technology-partner and offtake stress, or do regional majors' builds proceed and validate the demand-pull thesis?

For the adjacent reads, our circular-materials outlook for 2026 sets the regional frame this piece sits inside; the certification-and-quality argument runs in parallel to the spread dynamics in rPET spreads and the feedstock question we track in UCO supply; and the financing constraints behind the plant build-out connect to waste-to-energy financing in SE Asia.

Notes

1. Regulation (EU) 2024/1157: EU plastic-waste exports to non-OECD countries banned from 21 November 2026 for at least 2.5 years. Source: European Commission, DG Environment, 2026. https://environment.ec.europa.eu/topics/waste-and-recycling/waste-shipments/plastic-waste-shipments_en
2. Bain & Company, "Building a Resilient Plastic Circularity Framework in Southeast Asia," 2025 — names securing feedstock supply as the binding constraint. https://www.bain.com/insights/building-a-resilient-plastic-circularity-framework-in-southeast-asia/
3. Vietnam's EPR regime rests on the Law on Environmental Protection 2020 and Decree 08/2022/ND-CP. Source: Vietnam Briefing, 2026. https://www.vietnam-briefing.com/news/vietnams-extended-producer-responsibility-policy-company-recycling-obligations.html/
4. Decree 110/2026/ND-CP: issued 1 April 2026, effective 25 May 2026; consolidates EPR. Source: Tilleke & Gibbins, 2026. https://www.tilleke.com/insights/clearer-picture-of-extended-producer-responsibility-emerges-in-vietnam/
5. Packaging recycling rates ~10–22%, rising up to +10 points every three years (first ~2029). Source: Enviliance ASIA; Tilleke & Gibbins, 2026. https://enviliance.com/regions/southeast-asia/vn/report_5407
6. From 1 January 2026 Vietnam bans thin non-biodegradable bags (<50×50 cm, <50 micron); full single-use ban after 2030; zero-plastic-waste goal 2050. Source: Decision 1316/QD-TTg; Enviliance ASIA. https://enviliance.com/regions/southeast-asia/vn/report_5459
7. Hanoi: single-use plastics banned in hotels from 1 January 2026, free non-biodegradable bags from 2027, full single-use from 2028. Source: Vietnam MAE; VnExpress, 2026. https://en.mae.gov.vn/hanoi-to-ban-singleuse-plastics-in-hotels-by-2026-8953.htm
8. By 21 February 2025, 24 non-OECD countries (incl. Vietnam) sought EU-waste import eligibility; plastic waste is banned regardless. Source: European Commission, 2025. https://environment.ec.europa.eu/news/first-non-oecd-countries-request-eligibility-import-non-hazardous-eu-waste-2025-02-24_en
9. The EU ban puts ~140 kt/yr of imported waste feeding Malaysia + Vietnam at risk. Source: Bain & Company, 2025 (p.4).
10. Decree 110/2026 excludes plastic flakes as a valid recycled end-product. Source: APFL Partners; Tilleke & Gibbins, 2026. https://www.apflpartners.com/article-recent-update-to-the-epr-framework-in-vietnam/
11. PP-derived pyrolysis oil is mostly cyclic olefins (bromine number 85–304 vs naphtha ~1) and not a direct naphtha substitute. Source: Erkmen et al., Polymers 2023, 15(4), 859. https://www.mdpi.com/2073-4360/15/4/859
12. ISCC PLUS is the de facto chain-of-custody / mass-balance standard for circular feedstock. Source: ISCC System. https://www.iscc-system.org/certification/certification-schemes/iscc-plus/
13. On 6 February 2026 EU states approved an SUPD implementing decision letting chemically recycled content count via mass balance (fuel-use-excluded; scope PET bottles). Source: Plastics News; S&P Global, 2026. https://www.plasticsnews.com/public-policy/sp-mass-balance-vote-eu-chemical-recycling/
14. ICIS launched independent pyrolysis-oil price indexes (3 October 2023); the naphtha-substitute grade does not track naphtha. Source: ICIS, 2023. https://www.icis.com/explore/press-releases/icis-launches-pyrolysis-oil-pricing-indexes-for-chemical-recycling/
15. Recycling rate by polymer, 2022: PET highest (Indonesia ~50%, Thailand ~45%, Vietnam ~33%); flexible film <5%. Source: Bain & Company, 2025 (Figure 3).
16. Total collection and sorting cost runs ~1.5–2× the raw waste price. Source: Bain & Company, 2025 (p.3).
17. Urban plastic-waste capture for recycling: Indonesia 8–10%, Thailand 15–20%, Vietnam 20–25%. Source: Bain & Company, 2025 (Figure 1).
18. Vietnam 2022: ~3.0 Mt generated, ~0.7 Mt collected for recycling, ~2.3 Mt landfilled/incinerated. Source: Bain & Company, 2025 (Figure 1).
19. The SE Asia value chain is fragmented and informal-heavy at collection and sorting. Source: Bain & Company, 2025 (Figure 2).
20. China's 2018 National Sword ban redirected scrap to SE Asia; Vietnam froze scrap imports in 2018. Source: World Bank, Vietnam Plastics Circularity, 2021. https://www.worldbank.org/en/country/vietnam/publication/towards-a-national-single-use-plastics-roadmap-in-vietnam
21. Imported share of recycled feedstock, 2022: Malaysia ~52%, Vietnam ~30%, Indonesia ~24%, Thailand ~23%. Source: Bain & Company / UN Comtrade, 2025 (Figure 4).
22. Europe: ~300 kt of mechanical recycling capacity closed in 2024 and ~1 Mt since 2023; chemical recycling has stalled (18 of ~65 projects live by Oct 2025; Dow, Neste, ExxonMobil cancellations). Source: Plastics Recyclers Europe; Chemistry World, 2025. https://www.plasticsrecyclers.eu/news/2024-data-reveals-a-deepening-crisis-of-the-european-plastics-recycling-industry/
23. Plastic Energy's UK companies entered administration on 27 April 2026 (FRP Advisory); the Spanish plants are unaffected. Source: Plastics News; letsrecycle.com, 2026. https://www.plasticsnews.com/processors/recycling/sp-chemical-recycler-plastic-energy-uk-goes-into-administration/
24. EPR is in place in Vietnam, the Philippines, Malaysia and Indonesia; FMCG brands target 20–50% recycled content but resist premiums. Source: Bain & Company, 2025.
25. About half of SE Asia consumers say they would pay a >10% premium for sustainable products. Source: Bain & Company, 2025 (p.2).
26. Bain's 2030 SE Asia recycled-plastic penetration scenarios: 7–9% / 10–12% / 14–16%. Source: Bain & Company, 2025 (p.1).