PPRC 2016: PET reclaimers face challenges

Speakers outlined the state of virgin PET production and the challenges facing recyclers.


Pictured above, from left: Dan Sandoval of the Recycling Today Media Group; Octavio Victal of Avangard Innovative, who served as moderator for the PET Super Session; and Steve Navedo of Perpetual Recycling Solutions and Ryan Pawlinski of Phoenix Technologies, who served as speakers 

The virgin polyethylene terephthalate (PET) market is going to be characterized by hypercompetition and lower pricing in the coming years, which is likely to negatively affect demand and pricing for recycled PET (rPET), according to speakers at the 2016 Paper & Plastics Recycling Conference, which took place in Chicago Oct. 19-21 at the Chicago Marriott Downtown Magnificent Mile. 

Tison Keel Jr., director of PET, PTA and EO derivatives at IHS Chemical, based in Houston, said global PET demand averages 19.9 million tons, with China being the largest consumer.

North America has seen consolidation among virgin PET producers, he said, with DAK, Indorama, M&G and Nan Ya remaining. “Demand for PET in North America is basically flat,” Keel said, adding that this factor likely was fueling consolidation in this region.

He said that as Americans attempt to get healthier, shifting from consuming carbonated soft drinks to bottled water, PET has suffered. Consumption of soft drinks is declining at a rate of 2 to 3 percent annually, Keel said. However, PET water bottles are one-third lighter than PET soda bottles, which also is affecting reclaimers in that more bottles are needed to make up each pound.

In nonbottle containers, he said PET’s substitution for other materials, such as glass, has “maxed out.”

These factors add up to what is “not necessarily a great story for demand,” Keel added.

Regarding virgin PET production globally, he said capacity overbuilding started in 2012. Operating rates are in the low 70s, Keel said, adding that margins are “very thin” for the virgin PET industry.

The situation is exacerbated by PET imports from Asia, which are selling at or below production costs in North America, he said, adding that additional anti-dumping action could occur, though it might take two years to play out.

These factors are leading virgin PET producers to backward integrate their operations, which is putting them in a stronger cost position going forward, Keel said, and making them more competitive with imported PET.

However, Keel predicted that we are entering a price trough for virgin PET, adding that the M&G Chemicals PTA (purified terephthalic acid)/PET project that is set to come online in 2018 will be “an inflection point” for the industry. This new PET plant will have a nominal production capacity of 1.1 million tons per year, while the plant for integrated PTA, the primary raw material used to make PET, will have a nominal production capacity of 1.3 million tons annually. He said this and similar capacity additions will create a “hypercompetitive market” for PET in the United States.

“PET capacity should be rationalized,” Keel said, “but that is not happening yet. I think a little will occur, but more doesn’t seem likely based on the track record.”

He concluded by saying, “I think PET prices will remain low until pushed up by crude oil prices. I think it will take five years to get oil back up to the $70-$80 range.”

While the state of virgin PET production isn’t encouraging news for rPET producers, Steve Navedo, senior vice president of sales at Perpetual Recycling Solutions, which is based in Richmond, Indiana, stressed that “recycling needs to stand on its own.”

Navedo pointed to the decline in the U.S. PET recycling rate for 2015, citing the “Report on Postconsumer PET Container Recycling Activity in 2015” from the National Association for PET Container Resources (NAPCOR) and the Association of Plastic Recyclers (APR), saying, “If we don’t recycle more every year, we are going to continue to go backward because there are always more bottles coming out on the market.”

He added, “The biggest dilemma” for PET recyclers “always has been supply.” However, Navedo said, Perpetual has “managed to deal every year with preserving the supply stream that we have.”

Contamination of the PET stream recovered for recycling also is an issue rPET producers are contending with. He said thermoforms that are included in PET bottle bales have the potential to increase contamination because of the labels they use. Other issues include shrink sleeve labels, colors, opaque containers and plastic cans with metal caps. “Anything that complicates the package complicates recycling,” Navedo said.

Ryan Pawlinski, supply chain manager at Phoenix Technologies LLC, Bowling Green, Ohio, echoed Navedo’s comments on the diversity of packaging types. He said additives used in some plastic packaging and the diversity in rigid packaging can be problematic for reclaimers. Shrink labels and bright colors used on some packaging to increase market appeal also present challenges, and lightweighting means that reclaimers must process more material by volume to get the same output by weight.

Curbside bale yields are lower than desired, impacting both volume and cost, Pawlinski said, adding that 65 percent is the typical yield. “[PET] bales contain more two to seven plastics when the market is unstable,” he said. “Declining soda and increasing water bottles have changed the flavor of the bales and create processing challenges.”

Supply diversity also is an issue with which reclaimers must contend. “No two MRFs are created equal,” Pawlinski said. “Output is radically different by region and by converter.”

Phoenix is attempting to address some of these issues by working closely with its customers to understand the impact of upfront package choices and with its supplying MRFs to understand the sort for value model, providing feedback to validate their sorting, he said.

Process integration also has helped improve and control the raw material used in resin production, Pawlinski said. As a result, Phoenix has seen better and more consistent quality and better economics through quicker turns with less inventory.

Despite the challenges PET reclaimers and reprocessors face, Pawlinski says sees opportunity. He said rPET demand in packaging applications has grown by about 80 percent since 2009, adding that bottle to bottle represents the highest value application with high performance requirements.

To meet potential demand, the recycling rate will need to increase.

“Plastics are probably the most convoluted and most misunderstood of all recyclables commodities,” Navedo said, noting that a series of PSAs from Keep America Beautiful is hoping to address this. Navedo also serves as vice president of development for the Stamford, Connecticut-based nonprofit, and says a PSA on recycling film is planned.

“We want to make recycling like second nature,” he said of KAB’s efforts.

Navedo also mentioned that, when it comes to recycling, he believes the consumer is sold short. “We’ve tried to dumb down recycling,” he said. “I don’t think consumers are that stupid or lazy.”

 

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