The up-and-down plastics recycling market is up again, with recyclers predicting a good year in 2010, less than one year after the industry was in the doldrums due to the market collapse of late 2008.
But there remain unsettled issues, not the least of which is the perennial supply problem, which has added a few more twists.
In addition, with supplies tight and cost pressures increasing, recyclers are making investments to increase the efficiency of their operations, and weighing whether to forge more partnerships to secure supplies, or start recycling additional types of plastic resins.
As the economy has picked up, the recycling market has picked up, said David Kaplan, vice president of industrial recycler Maine Plastics Inc. in Zion, Ill. Prices are up. Demand is there. We are like the canary in a coal mine. If people are generating more scrap, then manufacturing is picking up and our business picks up.
That optimism is echoed by others.
We are doing very well. It is the busiest year for me, for sure, said Tamsin Ettefagh, vice president of post-consumer high density polyethylene recycler Envision Plastics Industries LLC in Reids- ville, N.C. We have been doing nothing but growing the past 10 years. We have done a phenomenal job of getting our resin into higher-value products the last four years.
We've seen significant demand across the board, particularly in the last six months, said Phil Howerton, a partner and co-founder of Custom Polymers Inc. in Charlotte, N.C., which also owns Custom Polymers PET LLC in Athens, Ga. There has been a significant increase in demand and market volume. A year ago, the market was soft and we were still in a downturn.
This time last year, we were rolling into summer with uncertainty. But now things are back to normal, said Scott Saunders, general manager of HDPE and polypropylene reclaimer KW Plastics Recycling in Troy, Ala. Our business has been very, very good since January. The market increase in virgin prices got the market going from its doldrums. We generally see 2010 as a healthy year for our business.
One thing that has helped recyclers, said Saunders, is that inventories were depleted at the customer level. Almost none of the customer base had any inventory, so when business picked up, it reflected right up the system. As orders came in, it had an immediate positive effect.
But even with the business pickup, supply remains a challenge for both industrial and post-consumer reclaimers in all geographic regions of the U.S. for several reasons.
More manufacturers have moved overseas, reducing the available supply of scrap in the U.S. The remaining U.S. manufacturers are using more of their own scrap. China's purchases continue to make supply tight and to push prices higher. Freight costs for delivering scrap continue to increase.
We have emerged from the Great Recession, said Scott Mouw, recycling director for the state of North Carolina. But there is too much demand chasing too little supply.
We've had a fairly decent upswing since the beginning of the year, but the problem is still getting a supply of materials, agreed Nicole Janssen, president of Denton Plastics Inc., an industrial recycler in Portland, Ore.
Manufacturing companies have gotten more adept at using their own waste material in their processes, said John Calhoun II, Howerton's partner and a co-founder of Custom Polymers Inc.
Kaplan agreed. There is less scrap because manufacturers are figuring out clever ways to put their scrap back into the products they make. It is a financial thing, a marketing strategy and the right thing to do. They want to reduce their costs and are also looking to reduce their carbon footprint.
At the same time, reclaimers have been hit with hikes in inbound and outbound freight costs.
Our transportation costs are increasing considerably, Janssen said. A lot of trucking companies have gone out of business. So the supply of trucks is down, the demand is up and the cost of transportation is going up.
In addition, there are now what Kaplan calls strategic delays by container shipping companies.
In the last several months, companies have announced price increases for the beginning of the next month. So freight companies figure they can make more money if they delay container shipments for a few days near the end of the month. Equipment is more of a factor. It is scarce.
What's more, Kaplan said, no one is sure what impact China's latest pronouncement that it only wants one material in each container will have on exports.
On the other side of that equation, China's purchase of close to 50 percent of all plastics collected in the U.S. continues to be a problem that won't go away any time soon.
It's just a fact of life, said Dennis Sabourin, executive director of the National Association for PET Container Resources in Sonoma, Calif. I don't see anything out there on the political horizon that will change that.
The net effect: China continues to control pricing. We export so much to them that they drive price, Janssen said. When they buy a lot, price goes up. If they drop out of the market, prices go down.
As a result, most reclaimers purchase material from Mexico, Canada, and Central and South America to supplement their U.S. supplies and cast a wider net to find materials. More than 70 percent of PET reclaimers and 40 percent of HDPE reclaimers recently surveyed by Resource Recycling Inc. said they had sought new sources of supply.
We've seen pretty drastic price changes in raw materials, said Howerton. How we manage that is basically inventory management.
We are aggressive buyers, added KW's Saunders. We try to maintain and improve our position with every supplier.
Reclaimers are also looking at new feed streams from different industries and working to help potential customers solve their problems, Kaplan said.
You end up getting away from the traditional buy-sell relationship, said Kaplan. You look at ways to help companies achieve their recycled-content initiatives, fill manufacturing gaps or [you] put together the logistics piece for them. In return, he said, you get access to their scrap. We have done that in the past, but it is more in the forefront of people's minds now.
With increasing material and freight costs, reclaimers are focused on making their operations more efficient. Indeed, a recent survey by Resource Recycling Inc. found that that 80 percent of PET and HDPE reclaimers said they had made investments to become more efficient.
We continue to improve equipment and efficiency to maintain our position as a low-cost producer, said Saunders. We have to be competitive with China, and they do not have our work rules, our safety rules and our environmental regulations. We make sure we are extremely efficient in our use of water and power, efficient in how we handle the material once it gets to us, and efficient in how we turn the material in the bale into a pellet.
Kaplan said Maine has invested in new machinery and information technology infrastructure.
We are always looking to invest in new technology to handle feedstocks more efficiently and more economically, he said.
Similarly, Denton is looking at investments that will allow it to dig deeper down into the supply stream, and this fall it will replace an extruder with a newer one that will reduce energy use and increase per-hour pellet output by 40-50 percent.
Likewise, the new PET washing line that Custom Polymers PET expects to begin operating in January includes proprietary technology that will increase yields and be energy efficient in terms of generating a clean flake, said Howerton.
You have to continue to invest in technologies that make your operations more efficient, added Ettefagh of Envision Plastics.
Ironically, though, one current inefficiency in the system the continuing decline in bale quality could give recyclers an opportunity to expand the range of materials they recycle.
Specifically, the amount of polypropylene that finds it way into HDPE bales is now routinely 9-10 percent and upwards of 17 percent in some cases, said Ettefagh. That's a problem from a yield standpoint today, but also an opportunity, she said.
Right now, there is only a limited amount of PP recycling in the U.S., but it is an enticing market because of its high use. It is the largest-selling resin worldwide and it is starting to grow in the U.S. We may want to recycle it down the road, she said.
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