Recyclers face increasing number of challenges

National Harbor, Md. — As strange as it sounds, the pandemic was good for plastics recyclers. But reclaimers now face challenging conditions amid lower pricing and higher costs.

Gobi Saha has seen the highs and the lows of the recycled resin market over and over again in his 31 years of owning Kal-Polymers Inc., which has reprocessing operations in Flowery Branch, Ga., near Atlanta, and Mississauga, Ontario, near Toronto.

"Pandemic time, the business was booming. We couldn't keep up with supply [demands]. All of our lines were sold out," he said. Fueled by the increased use of packaged goods during the pandemic, plastics flowed through Kal-Polymer processing lines at such a rate that the company was turning down business.

But that was then, and this is now.

"We are feeling the pinch," Saha said, as lower resin prices are putting the squeeze on profitability to such an extent that Kal-Polymers is looking at several ways to cut costs and improve productivity, including increasing the use of automation and negotiating with customers. Staff also has been cut.

"For recycling, it becomes very difficult because we have a fixed cost for processing and handling," he said, despite lower selling prices for end products. "We are working hard with sources to give us adjusted price so we can still process material and cut down our losses."

Labor continues to vex the company as well. When businesses was booming, Kal-Polymers had difficulty attracting enough labor to keep up with demand. That also caused the company to increase wages to attract employees.

"It's the first time happening in my lifetime, the shortage of labor," Saha said while standing at his booth at the recent Plastics Recycling Conference in National Harbor. "That drove the labor cost so high. That hasn't come down with the slowdown."

The recycler believes the recycling market will continue to face problems until inflation is under control. He predicted that could happen later this year.

For KW Plastics Inc., February was a down month compared with the same month in the past, Recycling Division General Manager Scott Saunders said.

But the month was still one of the best Februarys for the Troy, Ala., recycler of high density polyethylene and polypropylene. It's just that compared with recent years, markets were down, he said.

"We had our COVID explosion of demand, so we've seen a little pull back. People have gone back to work. And markets have balanced a little bit. I would say month over month, we had a very good February. We were used to having records. ... So we were disappointed by that. But we're not surprised that the market has tended back to a more normal ebb and flow," Saunders said.

Questions remain due to factors such as uncertainty with the virgin resin due to new capacity.

"You also have new recycled capacity that's coming online without a growing supply of bales. So what is that going to do? Is that just going to slice the pie further and cause prices to be higher for the same amount of material, which will not be good for converters and brand owners," Saunders said.

President Eric Fradette of Exxel Polymers Inc. of Bromont, Quebec, started seeing a market shift in the last quarter of 2022.

"The demand was slowing down. The price went down. That's something that really doesn't help us because we follow the virgin market," he said. "It's just different. For the past two, three years with the pandemic, the demand was so strong.

"We feel the market is coming back," he said. "In our country, the demand is coming back."

Exxel is located southeast of Montreal and near the Vermont border.

Fradette expects a stable 2023 with conditions similar to before the pandemic. "This year is going to be really stable. … I think it's going to be pretty flat."

As Fradette made his comments during the recycling show, he did indicate he was seeing some price increases for both PP and PE. The slowdown, overall, has seen volumes decrease by about 20 percent and pricing decrease by about 30 percent for Exxel.

Most of what the company handles is post-industrial resin with some post-commercial plastics. And most of that material is rigid.

Despite facing a down market at the moment, Fradette said his company is taking the opportunity to handle some delayed work and even look toward the future.

"Even in this down market, right now, the market is a bit slower, we can do some maintenance on our equipment. For the past two or three years, we were pushed and pushed and pushed. Now we have time to do some maintenance," he said.

Exxel also is planning an expansion project. "I think it's good timing to be prepared for the next curve," Fradette said.

Plans are underway to construct a 45,000 expansion that will be home to both new production capacity and warehouse space. The project, expected to begin turning dirt in June, will include a new extrusion line as well as size reduction equipment. The new twin-screw extruder will allow the company to "do something a bit different" with some specialty grades.

The company wanted to build last year but put off the project due to a tight construction market. As the economy has slowed, Exxel is having problems now finding contractors to do the work that's currently estimated to cost C$10 million to C$12 million (US$7.3 million to US$8.8 million).

The project will add 7 million pounds to the company's current 40 million pound capacity and add at least seven new employees. Another seven silos also are part of the work. "You have to look forward. I'm too young to retire," Fradette said.

Jason Schrager, owner of broker Gulfstream Recycling of Boca Raton, Fla., sees positive signs but still caution in the market.

"Companies making products have been very selective in what they are buying," Schrager said. Some also have become more picky with what products they will accept, with the incidents of rejection or downgrading of loads becoming more commonplace, he said.

The market, Schrager said, has "loosened up the last couple months" but remains "still tight." He predicts that when markets improve, they will improve quickly. "When it turns, it turns on a dime."

Over at Falcon Papers and Plastics, Tony Bhatia remains optimistic despite the challenges of what he called a down recycled resin market.

"It's going to be slow. It's going to be really slow," he said about the rest of the year. "That's my view."

This comes from a businessman who helped open the company's processing operations Holland, Ill., in 2020 as COVID-19 raged. "You have to plan these things ahead of time. I didn't know COVID was going to hit us until it was too late."

Despite those challenges, Falcon opened in late 2020 and now runs around the clock processing a variety of post-industrial films, including low density PE, multilayer LDPE and nylon, and PP. This material is processed into pellets and chiefly exported to Southeast Asia, including to company facilities in New Delhi that make new products including trash bags and liners for gaylord boxes.

Unreliable logistics, including difficulty in securing shipping containers, continue to cause some headaches for Falcon, Bhatia said.

"I feel it's going to be slow for a while. It's going to go up. It's going to go down. But definitely it's slower than what it was. It's going to take some recovery," he said.