North American recyclers are benefiting from rising virgin resin prices and a cutback in competition from China. But experts say they still face many challenges, and there could be consolidation ahead.
“Some people [in the post-consumer PET market] are having troubles getting material and are nowhere near their stated capacity. A lot of people are not going to be able to stick it out,” said plastics recycling consultant Jean Bina, former key buyer and supply chain manager at Phoenix Technologies International LLC in Bowling Green, Ohio.
Another recycling executive also sees the boom in new recycling capacity eventually leading to consolidation. “With all the new plants being built for PET reclamation, not everyone is going to be able to survive. Only those that are strong financially will be able to stay in the game. The same holds true for [high density polyethylene] recyclers.”
One of the problems, said Bina, is that “too many people did not understand the supply chain and how it works.” The other is that the amount of PET needed to run existing recycling plants is nearly 1.5 billion pounds, and several expansions coming on line this summer will boost that by another 200 million to 300 million pounds.
“A lot of companies are trying to find their way and having their challenges,” Bina said. “There have been some misfires with people buying expensive equipment with bells and whistles and not understanding how the industry works.
“It is great to have this cool thing, but you have to have the ability to feed the beast,” she said. “There have been some good investments and some bad investments and some people have just fallen flat on their face.”
John Calhoun II, co-founder of Custom Polymers Inc. in Charlotte, N.C., which also owns Custom Polymers PET LLC in Athena, Ala. agreed.
“Washing bottles and putting out a quality product is quite tricky. Not everyone can do it,” Calhoun said.
One encouraging sign, at least for PET recyclers, is that “things are looking better” than a few months ago, said Mike Schedler, technical director for the National Association for PET Container Resources, based in Sonoma, Calif.
“NURRC [a joint venture recycling plant owned in part by Coca-Cola Co.] is no longer a buyer in the market. About 125 million pounds of capacity has been temporarily idled, and China is less of an issue than you might think they are,” he said. “In 2011, there will be more recycled PET available than ever.”
The Chinese have maintained their strong buying position on the West Coast, Schedler said, “but U.S. companies retook their position as the market leader in buying bales on the East Coast in the last three to four months. Most of what is being exported to China from the East Coast is stuff U.S. companies don't want.”
He also said that the three major PET recycling plants in California scheduled to start up shortly will alter the buying situation on the West Coast.
“That will help ease things because those companies aren't going to make those investments, then not match China's prices,” Schedler said. “They are going to go get that material, so they can process more and get more to market.”
Besides, he said, California's market development incentive payments — roughly 16 cents per pound — are scheduled to stay in place until 2016, and that's more than enough to shift the buying scenario there. “Even a nickel would more than tip the balance,” he said.
In addition, some internal changes in China should benefit U.S. recyclers.
Costs are rising for Chinese recyclers as the government works to improve conditions for women and children. In addition, Chinese consumers are drinking more bottled water, giving recyclers there a new source of material — especially since the local recycling rate is around 90 percent.
“They can now buy cheaper and better in China than in the U.S.,” said one executive.
“I firmly believe that as China Westernizes its business models, [recyclers'] costs will rise and they will be much more selective and savvy about what they buy, and won't be able to inflate prices in North America.,” Bina said.
“Five years ago there used to 10 Chinese buyers fighting over every bale, now it's five — and shrinking.”
Despite the push for sustainability, green products and a lower carbon footprint, some customers are still wary of using post-consumer plastic.
“There is more than enough commitment to keep demand for recycled resins strong for the foreseeable future, but short-term, a lot of purchases boil down to economics,” said Byron Geiger, president of Custom Polymers PET.
“When recycled resin goes above virgin, people start to question [recycled resin's] sustainability in the marketplace because the reality is that it costs more to run recycled resin than virgin resin,” Schedler said.
A case in point: One recycling company executive said a large container manufacturer is planning to make “very light” purchases of recycled resin over the next three months because demand from its customers has declined.
Some users of recycled plastics are “very cost-conscious,” said Scott Saunders, general manager of KW Plastics Recycling in Troy, Ala., and chairman of the Washington-based Association of Postconsumer Plastic Recyclers.
“The key is that it has to be a good product and make economic sense,” Saunders said.
That's also the view of Dan Slavin, president and CEO of thermoformer Dordan Manufacturing Co. Inc., which makes clamshells, trays and blister packs, mostly from PET, for consumer-goods packaging.
“I would like to say that all of our customers are utilizing recycled content for sustainability, but I'm not sure it's an accurate statement,” he said. “A lot of times customers don't want to be bothered with what's going on and are only interested in what marketing says they can sell, or it comes back to what retailers want.
“But I think that the cycle is turning and people are starting to see the realities of science and making more informed decisions,” he said. “I think it's starting when you look at the things brought into the market the last five years.