You might think a 50 percent boost in PET recycling capacity since the start of 2010 is a solid harbinger of nothing but good times ahead.
But like many plastics recycling issues, it's a mixed bag — particularly juxtaposed against a very slow increase in the pounds of PET resin recycled and collected. And some think it could lead to some PET recyclers going out of business.
“Everyone from the reclaiming community is kind of looking around and saying, ‘Where are we going to get the supply?' “ said Patty Moore, president and CEO of Moore Recycling Associates Inc. in Sonoma, Calif. “That's problematic.”
Some PET recycling businesses will go out of business for lack of supply, she said. “They may be able to survive long enough for new supply to come on line, but if we don't see new supply or a retraction of demand, you could see some reclaimers go out of business because there is not enough supply to go around.”
Will Sagar, executive director of the Southeast Recycling Development Council Inc., a group of recycling associations in 11 states, agreed.
“There is too much idle capacity sitting there. I think the threat is real,” said Sagar, who is based in Brevard, N.C. “We keep building capacity, and if we don't feed it, it could lead to overcapacity and shrinkage in the industry.”
“If you look at the statistics, you see a utilization rate of around 70 percent” for PET recycling plants, said Scott Mouw, the top recycling official for the state of North Carolina. “That's hard to sustain over time,” especially with the amount of PET bottles recycled and collected only slowly increasing.
“How can you be a reclaimer and approach an investor right now and say, ‘Let's put up another plant?' “ said Mouw. “If I was anyone in the reclaiming industry, I wouldn't be spending the money until I knew where I was going to get my supply from. And if I were in the financing industry, I'd say to a reclaimer: ‘Where are your supply agreements?' “
What is driving those fears at a time when demand for recycled PET is increasing? It's the slow growth in supply combined with a more than 50 percent increase in PET reclamation capacity since the start of 2010.
Between 2007 and 2010, the number of pounds of PET bottles collected increased by a total of just 11 percent and only 161 million pounds, to about 1.56 billion.
But, just since the start of 2010, a slew of investments has pushed the current active PET recycling capacity in the U.S. from 1.25 billion pounds to 1.88 billion pounds, with 19 major plants accounting for 93 percent of that capacity.
That's alarming — even if the rate of investment slows down, which is likely.
“The record investment in new plants the last few years can't be sustained, so you will see a natural slowing in investment,” said Steve Alexander, executive director of the Association of Postconsumer Plastic Recyclers in Washington. “But you will continue to see people making investments in new wash lines, new sort lines. As long as there is demand, reclaimers will respond responsibly.”
Yet there is overcapacity, even with initiatives under way to add PET thermoformed containers to the recycling stream.
“By July, we're going to be well over 2 billion pounds of PET recycling capacity,” said Mike Schedler, technical director for the National Association of PET Container Resources in Sonoma, Calif.
Even being “overly optimistic,” he said, the PET likely to be collected in 2012 will only reach 1.7 billion pounds. “That's 400 million pounds short, not including whatever the Chinese buy. Something has to give,” he said. “Not all of them are going to survive.”
As Schedler explained, since the end of 2009, there have been $700 million in investments for reclamation plants and additional equipment at PET plants.
“That's just for PET. That's not any other part of the chain,” he said. “And we've got another four smaller PET plants that total 40 million pounds coming on stream, and four more under construction,” he said.
Also, a half-dozen projects are moving forward to add 140 million pounds of capacity, mostly by retrofitting plants to recycle PET thermoformed containers.
“If I'm considering an investment, I'm not willing to chance it,” he said.
Equally concerning, Schedler said, is the scenario of everyone currently in the PET business trying to stick it out.
“If that happens, we could have a slow bleed across the board where everybody isn't healthy,” he said. “And, ultimately, I'm afraid that's what could happen.”