Market harsh, mood sober for US recyclers

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This story has been changed from how it originally appeared in print.

Ever so slowly, plastics recyclers and reclaimers are crawling out of the deep hole into which the industry plummeted last fall when the economy — and pricing — collapsed.

But prospects for 2009 still look troubled, with some segments flailing and a number of reclaimers hoping they don't join the ranks of those that have gone out of business.

Not surprisingly, given the economic malaise, reclaimers expect more industry consolidation and little expansion — except on the PET side, where captive market expansions are flourishing. They also say that until the economy recovers, remaining profitable will be a challenge because of Chinese policies and buying that drive up prices.

“Things are a little bleak because we are fiercely competing with China for materials and they are keeping the price about a nickel above where it needs to be,” said Tamsin Ettefagh, vice president of post-consumer high density polyethylene reclaimer Envision Plastics Inc. in Reidsville, N.C.

Scott Saunders, general manager of HDPE and polypropylene reclaimer KW Plastics Recycling in Troy, Ala., agreed. “One of our biggest challenges right now is the very aggressive buying by China on the West Coast and port cities on the East Coast.

“It is probably the biggest demand shift in a long time. It is almost as if the whole world has slowed down except for the Chinese raw materials buyers. We have to compete as hard as we can for resin.”

That aggressiveness by China has shrunk the gap in the U.S. between the cost of purchased recycled material and market prices for recycled resins. “Spreads have been decent, but demand for materials is weak because of the U.S. economic downturn and the spread is beginning to shrink,” said Saunders.

“Demand is OK, but not great,” Ettefagh said. “We have to have a bigger delta. Right now, your option is [to] run flat-out and have lower pricing, or back off and have higher costs.”

However, there is light at the end of the tunnel — sort of.

“Things are depressed, but they have bottomed and there is a little bit of an uptick,” said Scott Mouw, recycling director for the state of North Carolina. “But we won't see the prices we saw last summer for a long, long time.”

David Kaplan, vice president of industrial recycler Maine Plastics Inc. in Zion, Ill., agreed. “Everyone sees the market inching forward,” he said. “But if you ask recyclers how they view the market, they probably would not be pessimistic or optimistic, but most likely would describe the outlook as not optimistic.”

Depending on where their business is concentrated, individual reclaimers report volumes are down anywhere from 15-50 percent, with companies tied to the automotive and housing markets struggling the most.

“I've been doing this for 34 years and I have never seen it this bad,” said Gene Farrell, president of Polychem USA Inc. in Foxboro, Mass. “It's all down and nothing is really steady. Thank goodness we don't do automotive plastic.”

The downturn has claimed a number of reclaimers, including polypropylene recycler Sundance Products Group LLC, which Plastics News ranked in 2008 as the eighth-largest plastics recycler by sales. Other casualties are Waste Alternatives Inc., PET recycler Riggins Mills and several HDPE reclaimers including Affiliate Polychem Products Ltd., the recycling unit of Quebec-based pallet maker Solplast Inc., which filed for bankruptcy earlier this year.

Those HDPE closings have taken about 70 million pounds, or 8 percent, of capacity out of that market, said one industry executive.

“Everyone is fighting over an ever-shrinking share,” said another.

Kaplan agreed: “I see shutdowns continuing to happen. We get calls all the time from companies who say that recyclers are not paying them.”

Another executive described it bluntly: “HDPE is just a train wreck. They have had negative growth for over one year and there is nothing on the horizon to change that.”

With PET, it's a different story, underscored by several expansions in the first three months of 2009.

Tom Sherlock, resins business director for DAK Americas LLC, a partner in a new PET recycling project, said: “This is an ideal time to launch this plant because our customers are looking for high-quality recycled PET resin and are having a difficult time finding it.”

The plant, a joint venture with Dalton, Ga.-based Shaw Industries Group Inc., will eventually have capacity to reprocess 280 million pounds of PET annually.

All the other PET expansions for 2009 will produce food-grade resins. They include:

* A 25 million-pound-per-year plant that Custom Polymers PET LLC opened in January in Athens, Ga.

* A 44 million-pound-per-year line that New United Resource Recovery Corp., backed by an investment from Coca-Cola Co., opened in Spartanburg, S.C.

* A 10 million-pound-per-year line in Bowling Green, Ohio, that Phoenix Technologies International LLC plans to start within the next few months.

* A 40 million-pound-per-year plant in Davisville, W.Va., that will open this summer, owned by thermoformer PWP Industries of Vernon, Calif.

* A second PET wash line for Global P.E.T. Inc., scheduled to come on-line in September in Perris, Calif., with annual capacity of between 20 million and 25 million pounds.

“The PET market has rebounded, both domestically and in export markets,” with supply and demand pretty much in balance, said Dennis Sabourin, executive director of the National Association for PET Container Resources in Sonoma, Calif. “PET is not in the depressed condition it was before. Demand is strong, driven by the use of recycled material in sheet and thermoforming applications, the dynamics of sustainability, and Wal-Mart, which is driving the use of recycled material.”

What's more, the PET recycling rate, which has risen the past four years and now stands at 24.6 percent, is expected to climb further because of Oregon's expanded bottle bill and bills in New York and Connecticut that will add water bottles to mandatory deposit programs.

“We expect there will be an increase in the material collected and the recycling rates because of this,” Sabourin said.

But the vast majority of the new recycled PET resin capacity will be for internal use.

“The reality is that even when the industry had access to capital, it was challenged to invest in merchant expansions,” one source said. “Companies have a hard time convincing investors because none of the big brand owners are stepping up to the table in a fashion that is bankable.”

One problem for recyclers has been low prices for virgin PET resin. But despite the current depressed market, Mouw remains optimistic about the long-term use of recycled materials.

“It will take awhile to crawl out because inventories are high and warehouses are full because companies were buying material when prices were low,” Mouw said. “But we have seen this before and managed to grow.

“Long-term, the demand will be here when we get out of this hole.