Slumping virgin resin sales help boost U.S. bottle recycling rate

MYRTLE BEACH, S.C. (Oct. 28, 1:20 p.m. ET) -- In absolute pounds, the number of high density polyethylene and PET bottles recycled continued to increase in 2008, and so did the HDPE and PET recycling rates.

But the amount of pounds added to the recycling stream in 2008 for reclaimers was less than in 2007, and the primary reason that both recycling rates increased was because both sales of virgin HDPE and PET resins decreased in 2008.

HDPE bottle resin sales decreased by 305 million pounds, or 8.6 percent, and PET resin sales decreased by 317 million pounds, or 5.6 percent. The recycling rate is calculated by dividing the number of pounds recycled by the number of pounds sold.

“That is why the recycling rates went up,” said Tamsin Ettefagh, vice president of HDPE recycler Envision Plastics in Reidsville, N.C. “The denominator used is smaller because the number of containers and the weight of individual containers has dropped.”

Had resin sales simply stayed flat, the HDPE recycling rate would have increased only marginally from 26 percent to 26.4 percent, instead of increasing as it did to 29 percent. Likewise, the PET recycling rate, which increased from 24.6 percent to 27 percent — its highest level since 1997, would have only increased to 25.2 percent.

The all-bottle recycling rate, which increased from 24 percent to 27 percent in 2008, would have moved up slightly to 25.2 percent. PET and HDPE account for 99.1 percent of all plastic containers that are recycled.

The plastics bottle recycling report was released jointly by the Association of Postconsumer Plastic Recyclers and the American Chemistry Council on Oct. 28 — six days after the National Association of PET Container Resources, APR and the PET Resin Association released the PET recycling rate data. The two reports were originally scheduled to be released simultaneously.

“The volume of material collected continues to increase and that’s what we need,” said Steve Alexander, executive director of APR, the plastics industry’s recycling association. He added that the annual compound growth rate since 1990 for pounds of plastic bottles recycled is 9 percent — or three times the rate of growth in the gross domestic product.

“We continue to see growth and we are encouraged by that — especially given the market troubles and the economy last year,” Alexander said.

The collapse of the financial market that threw the U.S and world economies into a global depression last fall led to a drop in bale prices for recycled plastic materials of 70-78 percent in just eight weeks. Still the total pounds of bottles recycled increased by 75 million pounds, or 3.2 percent, to a record-high 2.41 billion pounds. In 2007, the volume of material recycled had increased by 115 million pounds, or 5.2 percent, to 2.335 billion pounds.

The volume of HDPE bottles recycled in 2008 increased by 16.1 million pounds to 936.7 million pounds after a drop of 7.5 million pounds the previous year, when laundry detergents shifted to concentrates and smaller bottles. The volume of PET bottles recycled increased by 55 million pounds to 1.451 billion in 2008 compared to a 124-million pound increase in 2007.

A big question looming on the horizon is whether the lower virgin resin sales in the U.S. in 2008 were a blip or whether those lower sales represent a slowdown in HDPE and PET resin growth long-term as corporate sustainability initiatives by consumer product goods companies shrink the amount of materials in containers.

“The troubling virgin resin sales [down 6.8 percent and 650 million pounds in 2008] means there is less material available to be recycled and that is a concern for us,” said Scott Saunders, general manager of KW Plastics Recycling in Troy, Ala., and the newly elected chairman of APR.

In addition, the amount of material collected in the U.S. and exported elsewhere — largely to China — escalated again to record levels, reducing materials available to reclaimers even further and forcing both both HDPE and PET recyclers to import more materials to have enough supply to run their operations.

“We are optimistic about the continued growth in bottle collection, but the question is how much is going to stay here,” Saunders said.

While PET imports remained virtually flat at 98 million pounds, HDPE reclaimers in the U.S. nearly tripled the amount of material they imported from 54 million to 141 million pounds in order to have adequate supplies.

“HDPE reclaimers looked at the available material domestically and told their purchasing folks to cast their net wider,” said Dave Cornell, technical director of APR, who put together the HDPE bottle and all-bottle report.

HDPE exports remained at 214 million pounds for the second straight year, but might have been 45 million to 50 million pounds higher had the export market not dried up in the last quarter of 2008.

In addition, where those exports went changed dramatically, with China increasing its purchases from 101 million to 139 million pounds, and accounting for 65 percent of the HDPE that was exported from the U.S. In 2007, HDPE exports from the U.S. had been almost equally divided, with 53 percent going to Canada and 47 percent to China.

“That is certainly a red flag,” Saunders said. “HDPE reclaimers are new to this export pressure and it has put a strain on producers,” noting that the number of HDPE recyclers shrunk from 29 in 2007 to 26 in 2008. “When the industry has excess capacity, these exports are not beneficial to the long-term health of the marketplace.”

Patty Moore, president of Moore Recycling Associates Inc. in Sonoma, Calif., which compiled much of the data on exports and imports and the amounts of material recycled, concurred.

‘That is a disturbing trend,” Moore said at APR’s fall meeting, held Oct. 20-22 in Myrtle Beach. Chinese purchases of natural-color recycled HDPE increased from 26 million pounds to 69 million pounds and their purchases of colored recycled HDPE increased from 24 million pounds to 38 million pounds. Chinese purchases of commingled resins in mixed bales declined from 51 million pounds to 32 million pounds as the Chinese focused on higher-quality materials, she said.

Likewise, for the third straight year, China purchased more than half the PET bottles collected in the U.S. — 53 percent, or 766 million pounds, mostly in PET bales, but also in some mixed bales. “That is another daunting number and most of this went to China,” Moore said.

Exports to China increased for several reasons, according to Envision Plastics’ Ettefagh.

“China lifted the regulations on scrap coming in. Their economy rebounded faster than ours, making their internal demand go up and there was pressure on Chinese companies from consumer product goods companies to recycle and develop sustainability programs,” she said.

In addition, because China’s plastic resins are oil-based and U.S resins are natural gas-based, the high oil prices for most of 2008 made Chinese virgin resins higher priced than virgin resins in the U.S., making recycled resins a lower priced option for Chinese companies, she said.

Moore added: “They [Chinese recyclers] can convert our recycled materials into recycled resins at a cost that is less than their virgin resin prices.

There are other reasons as well, said Saunders.

“The collapse of the U.S. dollar makes our material cheaper for other countries to buy,” Saunders said. “In addition, it is less expensive to ship material to China than across the U.S. Add to that the virgin resin price imbalance between the U.S. and China, and the quicker economic recovery in China and “that stacked the deck in favor of export markets and it brought the Asian buyers into the U.S. in full force,” he said.

The situation is not likely to change, Cornell said. “There is no reason to believe that exports of bales to China will plummet,” he said. “I don’t think that the export market for U.S. bales will dry up on a long-term basis.”

That creates three problems for U.S. recyclers. It makes investment decisions on capacity expansions more uncertain. While PET recyclers have announced several major expansions because of recycled content initiatives by several large companies, it’s a different story for HDPE.

“HDPE capacity is probably going to remain flat for the near-term,” Saunders said.

Competition for raw material tends to drive up the price for baled bottles.

“Our ability to survive depends on access to material and throughput,” Alexander said. ‘We need as much material as we can get and we need to do a better job of keeping more of it in the United States.”

The highest end-market application for recycled HDPE continued to be nonfood bottles at 43 percent — the same market share bottles have had for the last three years. Pipe was the second largest market, accounting for 17 percent — back to its level in 2006, and down 6 percentage points from 2007.

The biggest growth area was in lumber and railroad ties, which doubled its market share from seven to 15 percent in 2008.

“The market is flowing to higher-volume applications,” Cornell said.

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