Polymer pressures

The state of the recycled plastics market seems to be a tale with a variety of story lines. On one hand, traders and industry insiders say that demand for a variety of recycled plastic grades is strong and consistent, particularly for polyethylene terephthalate (PET) and high-density polyethylene (HDPE).

Pricing, however, has not been consistent across grades or regions, with some prices described as flat and others as increasing. Recyclers also express concerns that supply growth seems to be leveling.
 

Strong demand

Keith Freegard, managing director of Axion Consulting, based in London, says demand appears strong for most grades of recycled polymers at the moment, particularly in the U.K. which is currently enjoying a healthier economy than the rest of Europe.

He points to two factors helping to drive the demand for recycled plastics: cost savings to manufacturers and the goodwill factor they receive from using secondary commodities.

“Using recycled content allows for cost reductions of around 10 to 20% over the use of virgin materials, and it also may produce added benefits associated with the sustainable eco-credentials of using recycled material,” Freegard says.

He cites the PET and HDPE bottle markets as helping to maintain the closed-loop that the European Commission and the manufacturing sector recently have promoted.

In these markets, Freegard says, the strong connection between recyclers and branded users of the recycled grades indicates that there is a “well-ingrained declared-use market.”

Those long term relationships between the recyclers and the big users, he says, have translated to what is now 15 to 20% recycled content in such products as beverage, water and dairy bottles, and the industry is on track to reach 25 to 30% in the coming years.

“So there’s been a massive, shared backing of recycled content by both the PET bottle-to-bottle and the HDPE bottle-to-bottle industries—the dairy, water and drinks markets—which has created a nice, well-established market for recycled products,” Freegard says.

Similar views are expressed by Jonathan Short, founder and deputy chairman of Eco Plastics, based in the U.K. The plastics reprocessing company sources and sorts baled mixed postconsumer plastics and reprocesses both PET, and more recently, polypropylene (PP). The company added its PP granulating and wash line in 2014, and operations began in August. The resulting hot wash flake is sold to extrusion companies often serving the automotive industry, Short explains.

On the PET side, the company has a joint venture in place with Coca Cola Great Britain to supply all of the bottler’s recycled PET content in the region, equating to 25% recycled content. Now, Short says, the company is working to expand this type of arrangement to other brand owners in the drinks and water markets, which Short says is the U.K.’s single biggest market for recycled plastic.

Short says, while demand for PET is good, growth in this market has begun to flatline in recent weeks with regard to collection and, therefore, generation of materials. Though he notes that consumption of this material has shown no radical change.

He says the lightweighting trend occurring in both the PET and HDPE consuming markets continues; however, “every year plastic packaging takes more market share from metals and, in particular, glass.” Therefore, the combination of both trends means “no change or possibly even a little increase in terms of placed-on-the-market material,” Short concludes.

While Short says the region has come a long way in terms of the use of recycled content in packaging, he observes that further progress in this area is slowing, with some brand owners having lagged in using more recycled PET. But, he adds, “I think we’re starting to see some real positive headway.”

Demand for HDPE also is described as good for a variety of reasons. Short says demand for the resin tends to be consistent, and he points to more U.K. investment by pipe manufacturers in using recycled content. He also refers to the U.K.’s Closed Loop Manufacturing, the only company in the region producing a food-contact-grade recycled HDPE resin, which recently increased its extrusion capacity.

While Short describes price declines for most grades in recent weeks, he says an exception to this trend is for clear HDPE, in the form of clear milk containers, a packaging type that is not commonly used in the U.K. market.

“They’re not prevalent in Europe, therefore there’s a high demand for that material. So, despite polymer pricing coming down, that material seems to be going up,” Short says. “For those who have an interest in natural HDPE products, it’s a highly sought-after material.” Short and other recyclers describe strong demand from Asia for that material as well.

Demand for PP also is good, Short says, particularly within the automotive sector, where it finds many uses, and in the industrial sector, where it is used for crates, buckets and bins.

“There’s all sorts of applications that use PP,” he says, “and typically the U.K. has been an importer of PP and HDPE.” He adds, though, that as more of this material is generated and upgraded domestically, less is being imported.

Similarly, Short says before Eco Plastics added its PP reprocessing line, a lot of the PP the company sorted was sent to reprocessors in Germany for use in that country’s automotive sector. But by adding the hot flake line, thereby upgrading the material, “that opens up a whole different sector within the U.K.,” he says. “We don’t have to sell it to Germany anymore.”
 

Problem areas

Of course not all plastics markets are as healthy, stable and consistent as those for HDPE and PET. Freegard says that the films sector is one potential problem area at the moment, for one, because of the newly competitive price of virgin materials.

Recyclers of commercial low-density polyethylene (LDPE) film, such as pallet wraps, he says, “are finding it really tough at the moment” because of low-cost virgin HDPE film now coming into the market from overseas, which, he says is giving recycled-content film a run for its money.

Freegard explains that the virgin HDPE film can be produced at a thinner gauge than recycled content film, yet offers equal or higher tensile strength.

This “incredibly low-cost HDPE, Freegard says, “delivers extra strength in a way that makes the price of thicker recycled bags uncompetitive.” He says this film can be manufactured almost half as thin as recycled LDPE, yet the product is just as strong. “It’s incredibly hard to compete with that,” he says.

Another market for PE films, the damp-proof sheeting market, also is suffering at the moment, Freegard says. This is one area, he says, where the use of recycled film as a feedstock has traditionally had a good foothold.

“Unfortunately, with the specter of biodegradables and oxo-biodegradables entering the waste stream, it has made some of the market specifiers consider it too heavy of a risk to buy recycled content,” says Freegard. “So that’s really bad news for my colleagues in the film recycling sector.”

Freegard says he has seen some industry documentation that previously specified the use of recycled films, now calling only for virgin polymers.

Another factor viewed as a possible threat to the recycling sector is falling oil prices, which in turn affect prices of virgin polymers. Freegard and Short both refer to falling oil prices, driven in part by the shale gas boom.

“For all [that] the world economy is meant to be recovering, we’re not seeing that in oil pricing,” observes Short. And, he adds, “shale is going to have an impact on olefin prices, particularly.”

Meanwhile, Freegard says that a few years ago, everyone assumed that higher and higher oil prices would contribute to the strength of recycled materials. “To think that we’re going to continue to enjoy steady increases in the price of virgin driven up by the price of oil is turned on its head at the moment,” he says.

Freegard also says if the markets continue to see price reductions on virgin polymers, life could become increasingly tough for recyclers. “That is a big worry looking forward, and that’s what we’re beginning to see with the story on flexible PE products,” he says.

Another factor that’s undoubtedly affected the recycled plastic markets is slowing demand from China. Short says this drop in demand is likely one reason that collections of plastics in the U.K. could fail to meet the newest targets.

Short says the collection targets announced by the U.K. two years ago would effectively double the amount of postconsumer material collected by 2017; however, he says those levels are likely to be missed.

“Those targets were put in place based on the high demand from China going on forever,” Short says. He says those targets aren’t going to be met without demand for the material and without the ability to sort and reprocess some of the more difficult-to-recycle plastics.

While Short says the collections infrastructure has come a long way, he feels the U.K. still has a ways to go to match some of the PET recycling rates reached in other European countries.

But with the EU having recently announced new recycling targets for packaging materials, which he describes as very ambitious, he expects to see major changes in collections infrastructure as well as in reprocessing if those targets are to be successful.

“We need more manufacturing companies coming out and stating that they’re going to use recycled material in their products,” says Short.

In the U.K., Short says, he has seen a significant amount of investment when it comes to reprocessing infrastructure for plastics, with about 350,000 tonnes of sorting capacity added in recent years by way of plastics recovery facilities, or PRFs. In addition he refers to additional capacity in terms of PET recycling and wash lines, as well as more extrusion capacity to feed the HDPE food-contact-grade market.

However, recent investment in Europe’s reprocessing capacity has not been as significant, Short says, because that market made those investments years ago. Furthermore, he says, a lack of profits in recent years has made it difficult for European processors to justify upgrades.

“Reprocessing plastics is a very difficult market to make money in,” he says.

Short says while he believes demand from China for recycled plastics will continue for some time, he also believes Chinese consumers will continue to require high quality materials.

“They’re going to want a product that can be used directly into some sort of manufacturing process, not something that requires manual handling and sorting.” And with wages rising in China by 12 and 13% each year, he says, higher labor rates are likely to eventually take away that country’s unique selling proposition.

Short believes that the U.K.’s reliance in recent years on Chinese markets has been too great, especially since those markets “have all but disappeared,” he says. Furthermore, once Asian demand for secondary plastics evaporates, Short says, domestic infrastructure will still take time to develop.

However regarding infrastructure, Freegard says signs of reinstalled recycling capacity throughout Europe are visible. He refers to one unconventional but telling statistic: the fact that second-hand extrusion machines, which don’t tend to wear out very quickly, are suddenly difficult to come by, according to research efforts conducted on behalf of Axion. Freegard says after the financial crisis of 2009, when recyclers were laying off capacity, “if you looked for second-hand equipment, you could find nearly hundreds of two- or three-year old machines.” But in the last couple of years, he says, that trend has reversed.

“My experience over the last few years, is that you can’t buy any good second-hand machines,” he says. “My guess is a lot of them have been installed in Europe.”

Freegard says this finding could be a rough indicator that recyclers are reinstalling recycling capacity.

While that’s good news in some respects, it’s also a development that hints at the possibility of increased competitive demand in the midst of falling prices.

The author is managing editor of Recycling Today Global Edition and can be reached at lmckenna@gie.net.