Changing dynamics in recovered plastics market
By Brian R. Hook

The ebb and flow of the recovered plastics market may be on the cusp of changing again, impacting prices and supply, according to industry insiders.

“As with all businesses, strong demand for a product changes the business dynamics,” said Kenny Stapp, president of Plastics Kept Simple Inc., based in Nashville.

“More people jump in for the short-term. Once demand decreases to normal levels, these short-termers fall by the wayside. We have seen three such market cycles since 1991.”

Plastics Kept Simple purchases around two million pounds per month of polyethylene scrap. This includes stretch wrap, bags and grocery sacks. Stapp said that demand has been strong due to high oil prices as well as new plants coming online.

“Personally, I think the bubble will burst soon, pinching some players hard by catching them with high priced inventory,” Stapp said. “I feel that prices are about to decline. We hope they do. At that point we can assume our normal business pattern because the very people pushing prices higher are those who will be the first out.”

Mike Berger, president of DSC Inc. – a full-service plastics-brokering firm based in St. Louis that purchases and sells a wide-range of recycled, reground, reprocessed and virgin resins – said he has also recently started to notice prices softening a bit.

“I’m starting to see some pushing back on pricing,” Berger said, who focuses mainly on industrial scrap. “Demand is beginning to change a little bit,” he said.

Because of this, Berger said he is a bit more cautious. He looks at customer’s credit more frequently. “It seems every year that we go through a rash of bankruptcies and you find some of your larger customers basically going under,” he said.

Berger said dollar wise, business is up simply because plastic prices have inflated. “In some cases you’re seeing that prices have doubled in two years,” he said. This increased his risk, increasing his amount of receivables. “If you have a customer that goes under, the amount that they go under by is going to be much larger,” he said.

“People who hold huge inventories of material are now going to find themselves in a position where their base cost of their inventory is going to be extremely high and if prices really sink dramatically, they can wind up in a difficult position,” he said.

Berger said that the competition from China is also hurting his customers, which will eventually impact prices. “I’ve seen a lot of our customers, especially the smaller ones, the family-owned companies basically just get decimated,” Berger said.

Many of these companies had a difficult time pushing the higher prices of recovered plastics through to their customers, according to Berger. “It is a commodity driven business, they can go from feast to famine and back fairly quickly,” he said.

Laura Sharp, an analyst at Business Communications Company, Inc. (BCC), in Norwalk, Connecticut, recently completed a report on the recovered-plastic rates. She said important factors to consider when predicting trends include Chinese economic growth, waste fee structures, legislation, energy prices and the general state of the U.S. economy.

“Gathering information… is complicated by an unwillingness on the part of many companies to share information, difficulties in tracking exports and a number of other diverse factors, all of which can be difficult to measure,” Sharp said.

Despite these difficulties, BCC estimated that 2.7 billion pounds of post-consumer plastics were recovered in 2004. It expects over 3 billion pounds will be recovered by 2009. Sharp said that these estimates are higher than some other widely distributed reports, mainly because BCC covered more types of post-consumer plastics, including peanuts packaging, polyurethane from padding, plastics from siding and carpeting, battery casings, grocery sacks and various plastics from packaging films.

BCC found that plastic bottles are the most commonly recovered post-consumer plastic products. But it sees plastic films being recovered in increasing quantities, driven by demand for use in plastic composites. It also found that over half of post-consumer recovered plastics are used in consumer items such as containers, carpet and padding.

“While domestic fiber markets are struggling, tremendous potential exists for using recycled plastics in building materials and infrastructure applications. Many building and infrastructure applications are also more tolerant of the slightly degraded properties often found with recycled plastics,” BCC reported.

“Essentially endless markets exist for recycled plastic. The determining factor in whether plastic waste is marketable is whether or not it can cost effectively (and consistently) be collected and converted to an acceptable form.”