Recycled PET's downturn is hitting California hard as bales stack up as prices for the material crater amid lower demand.
A once-red-hot market for recycled PET (rPET) already had been cooling in recent months before the bottom dropped out in recent days, according to sources involved in the rPET supply chain in that state.
California, Corporate Purchasing Director Michael Sandoval at Evergreen Plastics Inc. said, is catching up with other parts of the country, including the East Coast and Midwest, where prices have fallen by about 80 percent.
Sandoval, through his position, brings a broad perspective of the market as his company is a plastics reprocessor that handles more than 2 billion bottles per year and has locations in Riverside, Calif.; Clyde, Ohio; Albany, N.Y.; and Amherst, Nova Scotia.
"I believe it's impacting everybody. But I don't believe what you are seeing is privy to California. If you look at it, maybe California was a little late to the parade," Sandoval said.
Bales of rPET are trading around 25 cents per pound in California, down from 50 cents early this year when concerns about supply forced prices higher.
In other parts of the country, rPET can be had for 10 cents a pound, also down from 50 cents, Sandoval said.
"There's so many different dynamics happening the last couple of months. That's why you have seen interruption and panic and all sorts of things happen," said Vahe Manoukian, buyer and inspector for the Plastic Recycling Corp. of California, a nonprofit group that facilitates transactions in the rPET market in that state.
While there are overall trends in the rPET market, California does have some unique market forces at play.
They include Assembly Bill 793, requiring recycled content in beverage containers starting in 2022, which helped supercharge the market early this year at a time when rPET supplies were lower due to decreased beverage consumption during colder weather.
"Supply is short; demand is still consistent. That drives price up. That was happening at the beginning of the year, and we saw prices going up in the early stages of January, February," Manoukian explained.
California supply was further stretched at the same time when harsh weather on the East Coast and in the Midwest put a damper on available rPET in those regions. This caused buyers from those parts to come into California to grab whatever they could.
"Everybody jumped and said, 'We need supply. We need to build back our inventory.' So they started really buying and that drove the price even more," Manoukian said.
Demand ultimately started to lessen from outside of California, partially due to concerns about the economy, just as the weather was warming and driving more bottled beverage consumption. This included a decreased appetite from fiber makers, such as carpet companies, using large quantities of rPET.
Buyers from Mexico also had entered the California market early this year in search of rPET, helping to drive prices higher. But they also have pulled back in recent months to further exacerbate the imbalance.
Key consumers within California, rPET reclaimers who make flake or pellets from the recycled bottles, also started to be more judicious in the market due in part to higher prices for their raw material. Some locations also are making facility improvements that impact the situation, Manoukian explained.
Evergreen, which has storage space constraints, is in the midst of an equipment upgrade that has limited its ability on some days to buy material. Work on the new sortation equipment should be completed by the end of the month to free up space now used for construction activities and allow the firm to resume consistent buying, Evergreen Chief Operating Officer Greg Johnson explained.
"It's caused some disruptions on how we can purchase and store material," he said. "It's caused us some downtime."
Jeff Donlevy is the general manager at Ming's Recycling Corp.'s Hayward, Calif., facility. He has never witnessed such market conditions.
"The reclaimers, the people who turn the bottles into new flake or resin, were just getting priced out of the market where virgin was much more attractive pricewise than using post-consumer material. A lot of them stopped buying because they couldn't sell the material and compete against virgin," Donlevy said. "They stopped buying and started using all of their available inventory [of rPET]. At the same time, supply was increasing from the recycling centers. That's causing, basically, a market collapse."
Ming's Hayward facility is so full of rPET bales that the company has taken to storing excess inventory outside of its 60,000-square-foot building. That's a first for Donlevy. The company's Sacramento location also is severely overstocked.
The upheaval in the market has pushed rPET pricing in California down from 36 cents per pound to 25 cents per pound just since the beginning of August, Donlevy said.
And that's for bales of Grade A material sourced directly from recycling centers that collect post-consumer bottles through the California bottle deposit program. This material, without contamination of other recyclables, is considered the best available. Reclaimers also use Grade B PET bales that have been made from curbside collection programs that use a single-stream recycling approach that mixes all recyclables into one container for easy household handling.
While the single stream helps consumers push more material into recycling streams, the approach relies on material recovery facilities to then separate plastics from other recyclables such as paper, metal and glass. The result is more contamination across the sorted commodity bales as they exit MRFs, lowering the overall value of the material.
Ming's Recycling is moving rPET bales, Donlevy said, but there is still more material coming in than going out on a weekly basis. That is causing inventories to continually rise. "We're falling behind. As we are falling behind, it's just adding to our backlog. And we've been falling behind since late April," he said.
"Inventory levels are at levels we haven't seen before, which means there's an oversupply with limited demand, which results in collapsing prices," Donlevy said.
Another specter looming over the rPET market is an uncertainty of what California will do later this year in terms of providing subsidies to recycling centers that collect the used bottle bill containers. These front-line locations accept the bottles and then ship them off to companies like Ming's Recycling for further processing.
Because the markets were sky high earlier this year, Donlevy is concerned that the state will eliminate or cut current subsidies given to the centers to help them operate. This would create further turmoil in the market and put some facilities in danger of closing. He calls this situation a tsunami waiting offshore.
While the recycling centers did receive subsidies during a red-hot rPET market months ago, Donlevy said everybody in the supply chain has been dealing with inflation, including higher wages and fuel costs, that has taken a bite out of the bottom line.
Donlevy is hoping that publicizing the current market conditions will help convince the state to keep subsidies in place.
"Inventories at our facilities are at levels that we haven't seen before. And probably by the tone of my voice, a little bit of desperation," Donlevy said. "It's not a question of what price can we move it at. We're running out of space [soon] before we have to rent another building."
Some other recycling firms like Ming's do not have much room to store materials, he explained. And that's helping prices fall.
"Some don't have the space to store it. They have to move it. Price becomes a secondary issue, movement becomes a priority. Buyers saw blood in the water. They started taking advantage of this market situation," Donlevy said.
Evergreen's Sandoval agreed a slowdown in the economy caused appetites to diminish on the fiber-making side of the rPET market.
"Housing is probably the biggest thing. The housing market is off 40 percent. What goes into the housing? Carpet, flooring, people buying couches. … If the housing market is off, the people making fiber are most likely going to be off as well, he said. "With that market out at a time when PET is most plentiful, it creates this situation where the supply is extremely high and the demand is soft."
This imbalance of supply and demand is common in commodities markets over time as one side or the other takes advantage of conditions to drive prices higher or lower to benefit their own bottom lines.
But Manoukian said he has not seen a situation this dire for suppliers since 2008, when China buyers pulled out of the market for a time and caused an excess supply of rPET in the United States. He expects rPET markets will continue to see upheaval.
"We haven't seen the bottom yet. We forecast the markets further going down. I think we're going to have another three months of rough ties until we hit the late fall season when things start coming back," he said.
"We're sitting on so much volume right now. Even if the market does rebound, it's going to take a few months for that [existing] volume to be depleted. I think the next three months, minimal, is going to be a rough road," he said, followed by a gradual recovery.
Sandoval agrees the rPET market is in for continued turmoil.
"We're searching for the bottle right now. That's really what we are doing. In order to start over again and get things right, you have to get to the bottom," he said.
"I can tell you, over the last 10 years, the pricing has been closer to 10 cents than it has been above 20 cents," Sandoval said, adding that the spike to 50 cents was an aberration.
"There's a lot of variables in this industry that play into everything that's going on. It's not just one thing. It's a multitude of things playing together. And that's how you find yourself in this situation. There isn't a silver bullet to explain it, that's for sure," he said.