A question of confidence

Departments - Plastics

A decline in consumer confidence could affect plastic scrap generation and demand.

February 8, 2017

*Producer price index is based on December 1980 average prices as 100; source: U.S. Bureau of Labor Statistics

With holiday and maintenance-related shutdowns behind us as of January 2017, a Chicago-area broker dealing largely in engineering resins says industrial generation of plastic scrap is increasing as operations restart.

A Midwest-based reprocessor whose company serves the auto industry agrees, saying his clients have been generating more scrap over the past six months as their production increases.

While the broker expects generation to remain steady through the first quarter, he says that will depend on the strength of consumer confidence.

As of December, consumer confidence was increasing, which Lynn Franco, director of economic indicators at The Conference Board, attributes to “the post-election surge in optimism for the economy, jobs and income prospects, as well as for stock prices, which reached a 13-year high.”

The index stood at 113.7 in December, up from 109.4 in November, while the Expectations Index increased from 94.4 to 105.5.

Franco adds, “Looking ahead to 2017, consumers’ continued optimism will depend on whether or not their expectations are realized.”

The Chicago-area broker says this confidence will be tested if the U.S. Federal Reserve continues to raise interest rates.

He also describes Trump as “the biggest wildcard” at play, mentioning his actions that are provoking the Chinese government and his talk of renegotiating the North American Free Trade Agreement (NAFTA).

Regarding domestic demand as of mid-January, the broker says “some materials are strong and getting stronger, and others are lackluster.”

Among the secondary engineering plastics he’s seeing reduced demand for are polycarbonate (PC), nylon, acrylonitrile butadiene styrene (ABS), polyvinyl toluene (PVT) and polytetrafluoroethylene (PTFE).

“We are seeing decreased demand for PP, PE (polyethylene) and TPO (thermoplastic olefin) as the price of virgin material is so low, the top recycling buyers are buying virgin instead of recycled,” the reprocessor says. “This is causing the recycled resin to be purchased at lower prices to the second-tier buyers, who are not consuming enough to keep up with the supply.”

Regarding overseas buying, the broker says pricing is low for secondary engineering grades.

Overseas demand for postconsumer material appears to be better, with a California-based broker saying, “Export prices were historically low but steady through most of the second half of 2016, but we are seeing a slick uptick in prices in the beginning of 2017 so far.” He adds, “PET (polyethylene terephthalate) is having a really good price run in the Asia market right now.”

However, efforts in China to address environmental pollution could affect the volume of plastic scrap being imported, the California-based broker says. “Many industrial centers are being regulated and restricted heavily,” he says, “which will definitely affect overall demand for plastic if it continues for many months.”

Regarding transportation within North America, the California-based broker says gasoline shortages in Mexico are creating “a lot of issues” trucking material into and out of that country, while the reprocessor mentions higher freight rates in the Midwest, with costs on some lanes increasing nearly 30 percent.