Fernandina Beach, Fla. — The recycled PET sector, Alex Delnik believes, is at a crossroads.
Make no mistake, Delnik is bullish on the business, as chief operating officer at Circularix LLC, which is planning a network of five PET recycling plants around the country in the next couple of years. Each one will process 75 million pounds of PET flake into new pellets.
"There is no guaranteed success going forward," he said. "The industry has changed from our point of view over the last two or three years more dramatically than the previous 15 years."
Societal forces play more of a role in plastics, and recycled plastics, than ever before in the United States. Countless companies have made environmental pledges to increase the amount of recycled PET used in their packaging, but the stark reality is that there simply won't be enough supply to meet all of the pledges, many tied to 2025 or 2030 target dates.
"What we had prior to 2019, we had a fragmented group of companies," Delnik said. "Pricing was benchmarked to virgin resin. It led to extreme volatility. Virgin PET, highly volatile. It has tremendous periods of volatility, usually related to oil and natural gas pricing, but also in development of new capacity," he said.
This led to a situation where recyclers were unable to forecast their own revenues because of the volatility of pricing. And that impacted existing businesses as well as the ability to finance recycling projects.
"There was no reason to finance. No investor, no private investor, no institutional investor would do anything," Delnik said.
"[Recycled] PET was considered an inferior substitute for virgin PET. It was kind of like PET, but not as good as virgin PET," he added. And customers demanded a discount off virgin resin pricing.
Recycled PET, in the past, was also used in smaller percentages of finished products, so quality was less of an issue. That meant there was no reason to justify investments to improve quality.
"That was the sorry state of the PET industry. Things have changed over the last couple of years," he said, starting in Europe, where higher-quality recycled PET became more normalized.
"Improving the quality of recycled PET is really difficult. Incremental improvement is not linear. It's more difficult with every increasing pound of recycled PET to meet recycled content. It's kind of an exponential scale of difficulty," he said.
While increased demand for recycled PET has led to a decoupling of prices from virgin PET, Delnik said, market forces are still at play.
"Demand is real and positive. But, clearly, this is not something that we can guarantee going forward," he said. "We do have a decoupling from virgin prices. We do have an acceptance of the premium that companies have, but those are not unlimited," he said at the recent Packaging Conference in Fernandina Beach.
As the gap between recycled and virgin resin prices increases, despite the pledges, "the appetite from companies using recycled content goes down," Delnik said.
A key to all of this, he said, is establishing a value for the used PET bottle.
PET's recycling rate of about 29 percent in the United States, he said, is kind of a meaningless number to gage the market.
States with bottle deposits have recycling rates in the 70, 80, 90 percent range, he said. States without deposits don't come close, he said.
"The average collection rate is just under 30 percent. I would argue that number is absolutely meaningless. That number represents nothing. There's no state in the nation that has collection rate anywhere close to that number on either side," Delnik said.
"What we need to realize is that unless we establish value to the bottle, unless the bottle has a value at any point of its useful life, we are not going to get collection rates — very simple," he said.
Delnik previously operated PET recycler Verdeco Recycling in Terre Haute, Ind., a few hours from one of the most talked about rivalries in college football: Michigan vs. Ohio State. In his view, tailgating at both teams' stadiums serve as a microcosm for PET bottle recycling. PET bottles quickly disappear from Michigan's parking lots thanks to that state's deposit bill. Enterprising students can make some quick cash by collecting the discards of others. But Ohio State's lots are trashed with bottle debris due to a lack of bottle deposits there.
"Everybody talks about it. I don't think anybody here disagrees that we need to increase collection. But I don't think that we fully understand that we can talk about it as much as we want to until the cows come home," Delnik said. "But unless we do something that works, nothing is going to change."
PET recycling also needs to attract more investment, he said.
"The question is, How can we make sure that the industry survives this period of uncertain demand and continues to persevere while the quality requirements are becoming more and more stringent? We need more investments in the recycling infrastructure," he said.
"[The] recycled PET industry, from our point of view, is really at an important crossroads. And I think that what we need to do, we need to basically be intellectually honest and realize what's working [and] what's not. Learn from our mistakes in the past and move forward," Delnik said.
"That includes really increasing collection rates through deposit return systems or reverse vending machines. Anything that assigns value to the bottle. We need to build recycle mandates. … We need to strengthen it through a more friendly investment climate," Delnik added.