JUNE 2009

Recycled plastics markets stabilizing

Click to enlarge - Nicos Polymers’ extensive reprocessing capabilities allows for the reclamation of multiple polymer types. Nicos has the capability to process these polymers into several different forms including pellets, powders and regrinds. This allows the reclaimed materials to be provided in the optimal geometry for specific manufacturing processes.
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Last October the bottom fell out of commodity prices and plastic recyclers were stunned. But this is a tough, resilient sector of the recycling industry and the people in it are adaptive to up and down markets and working with lean margins. After all, it’s a relatively young industry – only about 30 years old – and the players have learned from previous economic bumps and bruises.

For instance, after a healthy 1995, commodity prices nose-dived in 1996 and the lessons were not forgotten – watch prices and demand closely, avoid burdensome inventories, always look for new customers, even new markets if necessary, and try to have orders in hand before acquiring new supplies.

“We reached peak prices last summer because the crude oil price was very high and all the plastics made from petroleum products were consequently high. Life was good. There was demand and always a shortage of supply because we did not have enough recycled plastics to satisfy all the domestic and export demand. We are returning to 2005 price levels when crude oil was about $50 per barrel, like it is priced today,” said David Cornell, technical director for the Association of Post-Consumer Plastic Recyclers.

Since late last year, plastic recyclers have been slowly clawing their way back. There may have been some unexpected “winter vacations” for management and labor, but the business is reviving. It is nowhere near the peak levels of last summer, but getting back to a sustainable business model.

Steve Anderson, a partner at APC Recycling in Killingworth, Connecticut reminisced about his bleak winter. “November, December and January were the roughest three months in the 20 years I’ve been in the business. ­After that, it started to slowly pick up. We move a lot to China and exports to there have picked up, not at a level that it was last summer, but it has stabilized and is moving pretty steadily. I wouldn’t say domestic sales are flat. We can still move product, but the demand is certainly not robust. Some of the grades that have normally picked up at this time of year are still fairly low and hard to move.”

APC ranks among the top 100 plastics recyclers in North America and processes and markets between five to seven million pounds a month. “Exports were absolutely dead the first two or three weeks of January. It picked up a little towards the end of the month. In February, exports started to warm up and in March it picked up pretty significantly, and it’s continued picking up in April,” said Anderson.

Late last fall, the crushing blow to post-consumer plastics came from the drop in orders from China. In fact, demand evaporated with boatloads of recycled materials stalled in Asian harbors. Polyethylene terephthalate (PET) is a good example: Up until the fall of 2008, the United States had been exporting 500 to 700 million pounds of PET annually to China. PET is one of the largest and most commonly recycled plastics used in food grade packaging such as for water and beverage bottles. The collection and processing rate for 2007 in the United States (most recent available) was 1.4 billion pounds of PET. Approximately 1 billion pounds of PET is recycled domestically, the balance is exported, most all going to China. When China stopped buying, the surplus increased.

At the same time, curbside collection continued at more or less the same volume and delivered material to material recycling facilities (MRFs). For the 480 MRFs, the trucks kept coming in and inventories kept growing larger. Without ready markets to move the material, there were only two choices: store it or shut down. A few MRFs had to shut down, but most survived – many because they operate under municipal financing. MRFs either dumped inventory at a loss, or stored the material, waiting for demand and prices to recover. On the positive side, unlike paper and cardboard, baled plastics can be stored outdoors to avoid warehousing costs.

David Cornell explained the ramifications: “People were warehousing the material. The question was where in the line do you store it? It’s worth money, now and in the future. The difference between the future value and the price paid was the carrying costs to store the stuff.”

Reclaimers and brokers like APC Recycling were hit hard by inventories backed up in the supply chain, but had much greater flexibility than MRFs to manage it. APC acquires material from professional recyclers that bale products, from distribution centers and from manufacturers generating industrial scrap. The company picks up polyethylene, polypropylene, polyolefin and other scrap plastics from all over the country, but concentrates in the northeastern market. APC brings most material into its grinding facilities in Connecticut, but also brokers exports through Vancouver to China. About 25 percent of APC’s business is brokered for export and does not come through its facilities. “Even if it’s close financially to bring it here, we prefer to do so to check and assure quality and take the proper pictures for export,” said Anderson.

Like many processors these days, Anderson is extremely cautious about inventory. “Right now I don’t allow any of our people to buy anything for inventory unless it’s already pre-sold. We don’t speculate. Unless we have orders in-hand we don’t buy. I’m not going to get stuck with a warehouse of goods if things fall off a cliff like late last year.” This seems to be a prevailing attitude among processors. Back in the days of strong demand and peak prices, processors would gamble that they could warehouse today and sell tomorrow. These days, caution is the byword for inventory.

Post-consumer processors are also buying at much lower prices. Even though they add value through consolidation, shredding, grinding, pulverizing, fine separation, pelletization and quality assurance, it’s essentially a buy-low sell-high business.

Post-industrial recyclers like Nicos Polymers Group of Nazareth, Pennsylvania have been affected by the economic downturn, but are nevertheless optimistic about the future. Nicos is among the top ten United States recyclers and processes 90 to 100 million pounds annually. In addition to general purpose processing and sales of polymers, Nicos does toll processing for large manufacturers. Kevin Cronin, CEO of Nicos put it this way, “The trading and selling part of our business slowed significantly in November and December, but we see niches of recovery and they tend to be very material-specific.” Nicos is seeing relatively good demand for packaging materials such as clear PVC, polyester and PET. “We also see some strengthening in demand for some grades of high-density polyethylene as well as some higher strength materials such as high impact polystyrene. Some specific applications requiring those materials seem to be showing early signs of a comeback but there is a long way to go yet.”

Nicos’ toll processing for large manufacturers has not dropped off as dramatically as the buy-sell side of its business, but it has fallen off simply because manufacturers are producing less. “Overall, since last fall our business has fallen off approximately 15 percent in volume, but of course from a revenue standpoint it’s more because on the buy-sell side we deal significantly with commodities,” said Cronin.

Cronin is optimistic about recovery. His company just launched a new division, Innovative Sustainability Solutions, that specializes in sustainability programs, cradle-to-cradle recycling, product life cycle management and landfill avoidance strategies. “Increasingly, larger companies are beginning to focus on sustainability. I do see our ability to generate new opportunities and revenues based on the focus of helping companies reach their sustainability goals,” said Cronin.

Today, plastic recyclers are working off inventories. Export demand is building slowly. Domestic demand is down, but seems to have stabilized, especially for recycled plastics that feed into containers and packaging found in grocery stores. No doubt consumers have moderated spending, but the budget category least likely to be cut is food and beverage, which relies heavily on plastic packaging. Recycled plastics that had been going into construction materials and automobile manufacturing have been badly affected. New technology developments, however, are working towards better recovery of mixed streams of polymers, such as from scrapped vehicles. Plastic recyclers are generalists and can readily adapt to changing market conditions. Wherever a market is, they follow it.

Despite current market conditions, the future for recycled plastics is promising. Recycled plastics are purchased because they do a better job for less money than other materials. Even though the raw material stream is diverse and challenging, recyclers are delivering higher quality products in greater volumes across a broader range of polymers. The growth in electronic recycling, for instance is delivering larger, more consistent streams of acrylonitrile butadiene styrene (ABS) from computer and electronic equipment housings. Electronic equipment manufacturers are leading the way by identifying components with stamps on injection molding tools that expedites separation and results in more material being reclaimed.

Products incorporating recycled plastics and identified and promoted that way, also have market appeal in a greening economy as consumers become more aware of the fact that polymers are infinitely recyclable and the last place they should go is into landfills. For example, park benches made of recycled plastics demonstrate a concern for the environment, but also delivers a more durable product with better value due to reduced maintenance.

“What is fascinating about this market collapse is that unlike financial institutions, recyclers did not go out of business. PET and high-density bottle recyclers are survivors. These are folks that are used to difficult moments and last fall was a really difficult moment – not for the weak of heart,” said Cornell.

“I’m cautiously optimistic as long as things keep going the way they are going. We had a pretty good first quarter after a terrible January and we’re having a pretty good second quarter,” said Anderson.

It may not the best of times for recyclers, but it’s not the worst of times either.