Plastic Scrap Prices Soar Then Sink

values of post-consumer PET and HDPE increased dramatically during the first half of the year, but the bottom has already begun to fall out.

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September 10, 2001

If what goes up must eventually come down, then the plastics commodity market is no exception. Strong demand for polyethylene terephthalate and high density polyethylene plastics during the last year have choked supply and stroked prices. Most of the cause-and-effect can be traced to two events: back-to-back poor cotton harvests in Asia that forced a shift to polyester clothing and a demand for PET exports; and an undercapacity of virgin HDPE.

But prices, which reached as high as 40 cents a pound for PET and 36 cents a pound for HDPE, are beginning to soften, and HDPE is "dropping like a rock." The downturn, according to industry sources, is due to shipping problems in the Far East, changes in some state laws, and a resurrgence in capacity of virgin HDPE.

Depending what geographical area of the United States is examined, PET and HDPE are now averaging about 20 cents and 18 cents per pound as of press time. These are still considerable higher than a year ago when PET and HDPE where are around seven and eight cents per pound respectively.

"When the cotton crop failed, the export market exploded, and the domestic market could not compete because the price being demanded for exports was far greater," says Marty Forman, president of Forman Metal Co. and Poly-Anna Technologies, Milwaukee. "In addition, a weak dollar made exports even more attractive. The result was a major shortage of PET and HDPE."

Luke Schmidt, president of the National Association for Plastic Container Recovery, Charlotte, N.C., says that Asian companies are trying to get their hands on every PET container that they can find to support their fiber needs in the absence of cotton. Many companies are reporting that material is being shipped overseas by the container load.

That demand overseas created the current shortage in the domestic market, but it also had a negative effect on previously large users of post-consumer resins. Companies like Proctor & Gamble could not get enough recycled material to manufacture their product containers. Therefore, those firms reduced their recycled plastic content.

"We just could not get enough post-consumer resin," says Tom Rattray, associate director of environmental quality at Proctor & Gamble, Cincinnati. "Now, with supply of HDPE plentiful, we will return to previous levels." P&G normally uses about 50 million pounds of post-consumer HDPE a year, and had cut its intake by 10 percent during the shortage.

Another reason for the tight demand and higher prices may be the overcapacity in post-consumer plastics processing. More processing plants have come on line, and the competition for feedstock has grown, thus contributing to the increase in prices.

"Before processing machines were idle due to lack of material to recycle," says Forman. "Now machines are idle due to overcapacity in the industry and the slipping of some recycling programs."

COLLECTION IS KEY

"We are trying to increase collection of plastics because of the supply crisis," says Jimmy Hendricks, spokesman for the American Plastics Council, Washington. APC reports that plastic bottle recycling grew 21 percent in 1994 over 1993, producing more than one billion pounds of post consumer resin, up from 891 million pounds in 1993.

The recycling rate for PET soft drink bottles topped 48 percent (up 7 percent) and HDPE bottles reached almost 26 percent (up 2 percent). For the first time, APC says that nearly one of every five pounds of plastic used to manufacture bottles and containers in the U.S. is recovered for recycling.

Although encouraging, APC says that more needs to be done. "Consumers must be strongly encouraged to continue to participate actively in local (recycling) programs," says Red Cavaney, president and CEO of APC. "The number of communities collecting plastic for recycling has more than tripled in the last four years."

"Clearly, there is a continuing supply shortage for PET and HDPE bottles," says Dennis Sabourin, chairman of the Association of Postconsumer Plastic Recyclers (a division of APC), and vice president of post-consumer procurement and recycling industrial affairs for Wellman Inc., Shrewsbury, N.J. "The members of APR hope that more communities will take advantage of today’s strong market for recovered plastic bottles and encourage the highest participation and capture rates possible."

"PET plastic has a proven recycling record and there’s no doubt curbside recycling programs are the key to that success," says Schmidt. "The issue today is that demand for recycled PET plastic is greater than today’s supply – we simply can’t get enough bottles. End-users aren’t the issue since demand is almost twice the available supply. The real issue is that PET plastic has become the packaging of choice for consumers and product manufacturers. The number of products made from recycled #1 PET plastic containers has skyrocketed over the last few years. However, if we are to continue developing innovative end-use products like new containers, sweaters, car parts and athletic shoes, we must increase our supply of recycled PET."

Others, like Forman, have a more discouraging view. "I really think that plastics recycling is in trouble," he says. "I see slippage in recycling by consumers and it worries me." Forman feels that plastics recycling is not where it should be and that certain "myths" about plastics recycling and curbside recycling programs have circulated in the national media that have been detrimental to the recycling effort. "Those myths have turned many people off to recycling or have lulled them into thinking that recycling is not really necessary anymore."

CRYSTAL BALL TALK

So what’s in store for plastics prices? In the near-term, expect PET and HDPE prices to continue to come down as the overseas demand cools and domestic manufacturing capacity lags in its return to using post-consumer plastic feedstocks. Adding to the slide will be recent regulation changes, such as the one in California which allows post-industrial resins to supplant post-consumer resins in plastic bottles, and the Florida law which recently expired requiring a certain percentage of post-consumer resin in new bottles.

Already, though, HDPE prices are taking a dive. "Prices are crashing," says Alan Logan, plastics marketing manager for Ensley Corp. , North Canton, Ohio, which moves about 600,000 lbs of HDPE and 400,000 pounds of PET per month. "The price of HDPE was just bid up too fast, now there are many companies out there stuck with inventory that was bought at the higher prices and now have to sell at a lower price and take a loss. The price of HDPE increased last year mainly due to virgin resin plants not investing in capacity improvements, thus supply could not keep pace with demand. Plus, some natural disasters along the way prevented virgin HDPE that was ready from being shipped. Now, new virgin HDPE capacity has come on line and plants have been fixed and upgraded, so the supply side is currently ahead of demand. Currently, the market is just not there for recycled HDPE."

Logan says that the PET situation is a different. "PET prices should remain relatively stable," he says. "There will be some relief in supply when our own cotton crop is harvested this fall, but there is still not enough PET-type containers being collected to satisfy demand. There is also a greater spread between virgin and post-consumer PET than between virgin and post-consumer HDPE. PET prices will go down, but there will not be a major drop."

Sabourin, whose company is the biggest recycler of PET in the U.S., says that PET prices have stabilized and the high export prices are a thing of the past. "We, however, still see a greater demand than supply in the U.S. for PET, and the supply/demand shortage will continue through the end of the decade. We have to continue to recycle plastic and promote it. Plastic recycling is increasing and that is good news, but we need to emphasize it more. We need more post-consumer plastic."

Wellman has begun a new recycling program called "Renaissance Recycling" that targets key markets about recycling PET containers. The program will be introduced in five cities this fall – Miami, Tampa, Fla., Washington, New York and Philadelphia.

Another major user of PET is Image Industries, Armuchee, Ga. Image, says that the use of PET for manufacturing textile fibers has translated into cost increases of more than 150 percent. Image, which uses recycled PET to manufacture carpet, has already passed along part of the PET price increase by raising carpet prices at the beginning of the summer. The company says that carpet margins will continue to be affected until higher-margin product are introduced and new PET purchasing efforts are realized.

"We are growing rapidly in the recycling industry and have made significant investments to become a low-cost producer of PET products," says Stan Padgett, president and CEO of Image. "We are meeting the challenge to procure raw materials head-on by expanding our buying group and establishing aggressive pricing polices."

The company says it has recently converted an existing PET facility to process both commingled as well as whole PET material, and a third expansion is expected to begin next month with the same dual processing capabilities.

Wellman announce increases in capacity, too, by acquiring a PET processing plant in Europe and announcing the construction of a new plant in the U.S.

GROWTH AHEAD

The demand for recycled plastics, overall, is forecasted to grow 13 percent annually through 1998, with demand for PET and HDPE having similar increases, according to a study by the Freedonia Group, a research firm based in Cleveland. Driving the demand for plastics is the healthcare industry which seeks to reduce costs and increase safety, and consumers who seek convenience and protection of their products, according to the Business Communications Company, Norwalk, Conn.

Furthermore, the Freedonia Group indicates that the plastics recycling industry in the U.S. will continue to grow as a result of recycled content legislation, an expanding collection network, improvements in recycling technologies and increased applications development. Together, these will combine to increase capacity and maintain a solid market for post-consumer plastics, which in turn, will help to keep prices stable. The technology advances in sorting and processing will improve efficiency and make recycled plastics’ pricing more competitive with virgin materials.

One recent advancement in technology occurred at the end of last year when Magnetic Separation Systems, Nashville, Tenn., introduced an upgraded optical plastics sorting system that uses computers and infrared sensors to identify plastics in stream. Optical sorting systems have been around for the last few years, but this system has been touted as having a higher sensing level to identify more types of plastics. One system was installed at a plastics recovery facility at the Garten Foundation, a recycler in Salem, Ore. "The system is exceeding our expectations," says Dan Hoagland, director of marketing and operations. "Our plastics volume is starting to ramp up and our profitability is trending in the right direction."

Advances in plastic product innovation also continue to fuel the market. Wellman’s ECOSPUN product was introduced two years ago, and is made from 100 percent post-consumer PET resin.

More rencently, ICI, Wilmington, Del., says it has created the first polyester film based on recycled resin from PET bottles. The film, used in food packaging, was cleared by the U.S. Food and Drug Administration.

U.S. Coexcell Inc., Maumee, Ohio, is now using post-consumer HDPE resins in the manufacture of 55-gallon drums. The multi-layer plastic drums can be use to store and dispense chemicals. When the drums reach the end of their useful life, then they can be returned to be recycled again.

With most of the attention towards PET and HDPE, some companies like Montell, Boca Raton, Fla., are finding ways to use post-consumer polypropylene plastic. Its product, Re-fax is a resin consisting of 25 percent post consumer PP and is used for making household cleaner bottles, durable storage containers and signs.

Polystyrene is also being recycled more. Companies like Amoco Foam Products, Smyrna, Ga., are making foam insulation boards with 50 percent post consumer PS, for example.

And the list goes on.

As for plastics #3 through #7 in general, prices should remain stable or rise slightly as volume increases are realized and more uses are found, especially for PP, PS and PVC.

The author is managing editor of Recycling Today.

 

Recycling Today uses the following abbreviations and numeric codes for plastic grades, as developed by the Society of Plastics Industries:

PET/polyethylene terephthalate/#1; HDPE/high density polyethylene/#2; PVC/polyvinyl chloride/#3; LDPE/low-density polyethylene/#4; PP/polypropylene/#5; and PS/polystyrene/#6. All other resins are designated under the number 7.