Market Trends for Post-Consumer Plastics

Market Trends for Post-Consumer Plastics

The following is a synopsis of two reports written by LOM Enterprises Inc. for the CIF describing market trends between 2017 and 2018. The views, opinions, and findings expressed are those of the author and do not necessarily reflect those of the CIF, its staff members, affiliates and/or governing bodies. The CIF makes no representations as to the accuracy, completeness, correctness, suitability, or validity of this information and will not be liable for any errors or omissions in the information or any losses, injuries, or damages howsoever arising from its display or use.

Background:

2016 witnessed the largest amount of post-consumer plastic packaging reclamation plant failures in the US and Canada since the 1990’s. In the USA alone, eight PET reclamation plants were shuttered or went bankrupt. Three others have been operating intermittently.

Reclaimers buy almost all Blue Box plastics material on a spot price basis. Since there is no price elasticity for this material (i.e. the amount collected remains unchanged by rising and falling prices), price is determined by who will pay the most at the moment of purchase.

The clean flake and pellet produced is usually sold on a truck load by truck load basis and must be priced below alternative materials available to the customer, be it virgin, off-spec virgin, virgin imports or competitors’ recycled resin. When virgin prices dip below the cost to produce recycled material, reclaimers are at a severe competitive and financial disadvantage. Even when corporate policies mandate the use of post-consumer resin (PCR), profitable production of an acceptable quality of flake or pellet mix can be very challenging for reclaimers. These were the market conditions seen through much of 2016 for resins like PET.

Market Forecast Factors:

The factors that have the most impact on plastic recycling markets, irrespective of resin type, include:

  • Virgin material cost
  • Export markets
  • Transportation cost
  • Supply and demand

Virgin Material Cost:

PLG Consulting of Chicago forecasts that the North American petro-chemical industry will invest around $145 billion dollars in related industrial facilities by 2025. This investment is the result of the sustained availability of low cost and abundant shale gas used to manufacture virgin resins. Not only has there been an investment frenzy in new monomer and polymer capacity but also in development of logistical support needed to efficiently get this product to market.

Spurred on by cheap prices for natural gas and crude oil, there will likely be a dramatic increase in the production of virgin resins during the next three years, leading to lower, possibly much lower, prices. PE, HDPE, LDPE and LLDPE are expected to be the most impacted followed by PET and PP. As a result, the post-consumer plastics recycling industry will continue to undergo a rationalization that began in 2016 with resultant strong downward pressure on all types of recycled plastics prices.

Export Markets:

Asian buyers have long had a strong position in the plastics market in the USA and to a lesser extent in Canada. That ended in 2017 with the announcement of National Sword (NS) an extension of the Chinese Law of Circular Economy. Originally NS was two different initiatives, one to exert greater permitting control, the other to reduce contamination in materials entering the country. NS is now synonymous with restricting the flow of all recyclables, not just plastics.  Currently NS is in full enforcement mode where no post-consumer plastic can be brought into the country without a permit, and as of March 1, 2018, contamination levels cannot exceed 0.05%.

This regulatory action has effectively eliminated access to Chinese recycled plastics markets, as the majority of existing MRFs and reclaimers would have difficulty meeting the new contamination specification. Most experts feel that this is a permanent change and are sourcing alternative markets and/or being forced to take action to improve their product quality despite the financial implications.

There have been reports of Chinese buyers looking to acquire existing recycling assets in the US that would allow shipment of pelletized clean recyclate back to China but the economics for these types of ventures have always been questionable. Clearly this situation will continue to have major impacts on US and Canadian recycling markets moving forward.

Transportation Costs:

Over the years transportation costs have been a small, but key, component for the post-consumer plastic recycling industry. Price fluctuations have been caused mostly by fuel prices and the availability/cost of sea containers. Fuel price spikes have geographically restricted some bale purchases as well as limiting access to some end markets. These spikes were passed along in the form of fuel surcharges by the trucking companies and generally “eaten” by the reclaimers. This situation is changing rapidly.

The vast majority of recycled material sales involve long haul trucking carrying full loads where fuel costs and driver availability are critical variables. The American Trucking Association estimates that there is a current shortage in the USA of 30-35,000 drivers that will escalate to 80,000 by 2020. The Canadian Trucking Alliance (CTA) forecasts a shortage of 33,000 by 2020. Compensation is increasing to attract new drivers and the associated cost increases are added to the total freight price.

Driver shortage has become so critical that some trucking companies are reducing the ‘lanes’ that they serve, further increasing costs and impeding reclaimer’s access to some sources of supply and end markets. Effective Dec. 10, 2017, new regulations by the US Department of Transportation concerning the mandatory use of Electronic Logging Devices (ELDs), further limited hours driven and top speeds which is exacerbating driver shortages. Canadian Shipper, forecasts a 10% increase in the cost of long haul rates, a low projection in light of information shared by reclaimers.

Virgin pellet costs will be substantially less affected as much of this material already moves by rail. PLG Consulting projects that by 2020, 81% of virgin product tonnage initially moved will be done by rail, up from 48% in 2017.

Supply and Demand:

Collected tonnage of PET and HDPE bottles has been declining in the USA and Canada over the last couple of years based on annual reports issued by NAPCOR, APR and conversations with reclaimers and MRF operators. Respondents all continue to express concerns about bale quality. Studies performed by NAPCOR in 2007 with Blue Heron and Southeast Paper uncovered PET contamination in single stream MRF fibre bales at 2-5% by weight. More recently one reclaimer noted an increase in paper contamination in PET bales and attributed it to efforts by some MRFs to improve the quality of their paper bales as a result of NS (i.e. greater efforts to remove PET from the fiber stream are inadvertently transferring additional paper to PET bales).

While PE prices are likely to slide downward, market options for much of the post-consumer films collected will be limited with Chinese buyers exiting the market. Film that requires little cleaning and is easily pelletized will continue to find markets, some going back into bags and other high end applications. Bags collected at supermarkets and other drop-off locations will most likely continue to find plastic lumber manufacturers willing buyers, but at much reduced pricing. Film bales generated by MRFs will have great difficulty finding markets, and those markets that might emerge will most likely have no value especially as virgin prices continue to slip.

Conclusions:

The full impact of shale energy investments are expected to start to bite in 2018 and carry forward past 2020. As a result, the price of virgin olefins, and therefore the value of recyclate and subsequently MRF bales, can be expected to steadily decrease. PET pricing will steadily increase until the impacts of the recent bankruptcy of high volume producer M&G Polymer, are remedied. Without markets for mixed rigids, reclaimer out throw bales and by-products, (which previously went to China) the economics of post-consumer plastic recycling will be seriously impacted at both the MRF and reclaimer levels. Ontario will be less impacted than most areas of the US given the investments made previously by producers and municipalities through CIF to address these market deficiencies.

Given the above forecasts, combined with a downturn in US recyclate markets, it would be a stretch to believe that any significant investment in traditional technologies will be made to address this market shortfall.

Significant new investments in plastic recycling at the MRF level will be unlikely until markets for paper and end market recyclate improve.

Eliminating PVC, PS, PLA and PETG from the plastic packaging stream would significantly improve the economics and quality of PET, PE and PP downstream recyclate. There is no application that currently uses these resins that could not be replaced by a recyclable or recycling friendly alternative.

Factors, including energy pricing, calamitous weather and tariff/trade regulations will continue to impact the markets in ways that are often unpredictable.

Read the full reports here:

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