Recycling industry challenged by pandemic, fragmentation, price opacity

Falling crude oil prices during to the pandemic drove down virgin plastic resins prices and made recycled plastic comparatively more expensive, adding to challenges the recycling industry has long faced such as industry fragmentation and a lack of price transparency for some products.

Image courtesy of Artur Konik/Pixabay

Recycling rates across Asia, Europe and the U.S. “are still very disappointing,” said Louise Boddy, head of commercial strategy and sustainability at chemical commodities price assessment and consulting company ICIS, speaking during Reuters Events Downstream Leadership Forum in late November.

Total global plastic production is about 350 million tonnes per year. Only about 30% of plastic waste is recycled in Europe, 25% in Asia, and as little as 9% in the U.S.

The low recycling rates of plastic waste “is a large-scale problem,” she said.

“Waste collection and sorting infrastructure is, I believe, the main barrier to the growth in recycling rates. But the sector is also being beset by low crude oil prices” that have caused in turn lower virgin petrochemical prices, she added. Virgin resin prices correlate to crude oil prices.

Lower virgin resin prices have caused “some sectors within recycling to really struggle financially as they are expected to compete” in cost, she added.

When virgin resin prices are lower, the premium paid for recycled material becomes a greater cost to a converter. Recycled plastic producers need that premium to cover higher expenses for collection, sorting, as well as recycling.

Recycling a fragmented industry

Part of the problem has been that the industry is very fragmented, with relatively small plants. The average recycling plant size globally is only 23,000 tonnes per year, according to data Boddy shared.

“The average plant size is still quite small, so it is a very fragmented industry certainly compared to fossil fuel, virgin petrochemicals. And the output from these plants, the yield, has been extremely low according to the data we gathered this year,” she added.

“One of the main causes of the low yields, and in fact low recycling rates in general, is the quality of waste feedstock,” she said. In 2020, as the pandemic worsened, collection efforts became more difficult.

However, not all recycled resin has suffered, Boddy said. Many high quality recycled plastics producers are already sold out several years ahead, she added.

“Some segments have been excluded from this and particularly the high grade material that is demanded by the fast moving consumer goods. It has a startling premium over virgin PET. We expect this to continue because of the supply-demand balance in the markets at the moment,” she added.

“And yet some of the low quality recycled plastics still struggle to find a market. These recycling businesses can be very fragile,” Boddy said.

Price opacity

The lack of price transparency for some recycled products also prevents more recycling.

In some cases, like recycled PET (polyethylene terephthalate), PE (polyethylene) and PP (polypropylene), as well as waste plastic bales, there is already good market-based pricing.

However, other plastics that are harder to recycle still have low volumes. Those “are non-commoditized and pricing is opaque,” Boddy added.

For European carbon price, U.S. carbon price and biofuels, there is already a market that allows buyers a comparison.

Yet the pricing for non-commoditized products is opaque. This means companies struggle to find believable, reliable pricing references that they can use to take decisions, she added.

Drivers for lower carbon emissions

End-user demand has probably been the main driver pushing for changes by petrochemical companies to reduce carbon emissions.

This demand has given chemical companies the incentive to add value and gain market share from premium “eco” products, Boddy said.

Other drivers pushing the chemical value chain to reduce emission are regulations, ethical investment and the so-called ‘green’ finance.

On regulation, Boddy identified “1,260 climate laws in place, doubling every 4-5 years since 1997.”

Regulation as a driver will “grow and eventually outpace consumer demand as the main driver for change,” she added.

“Then of course you have regulation around carbon emissions through ‘cap and trade’ in the EU and across of the U.S,” she added. Cap and trade allows businesses that exceed carbon limits to buy from organizations that have not reached their maximum carbon allowances and use them.

Governments can also have an influence through taxation.

As for ethical investment, flows into “sustainable” or ESG (environmental, social and corporate governance) funds increased fourfold during 2018-2019, she added. These funds select investments that meet ESG criteria.

Not moving to lower carbon emissions will have a cost, considering all the drivers and trends.

“I would say that it is still a challenge for many chemical companies, that is how to build in the higher price scenarios into their decision making,” she added.

Chemical vs. mechanical recycling

Mechanical recycling crushes the old plastic and granulates it without changing the chemical structure.
Boddy said chemical recycling, also known as molecular or advanced recycling, brings plastic waste back into the monomers.

“There are however a lot of pros and cons” to mechanical recycling, she said.

On the downside it has a carbon footprint but “usually not larger than a fossil fuel-based petrochemical,” she said.

Also, there is not at the time much transparency around the environmental impact that recycling plants have.

“The value of the output is hard to establish because effectively what is coming out is a virgin quality plastic but of course the sellers are arguing for any kind of premium,” she added.

The way regulators will approach chemical recycling is unknown, she added,

“On the plus side some of these processes can take mixed plastic” including the type that is hard to recycle mechanically, but some processes still need a high degree of sorting, she said.

An important advantage is that the chemically recycled product quality is good.

“This means that these products can be infinitely recycled, unlike mechanically recycled plastic where the quality eventually degrades,” Boddy said.

Patrick Kirby, olefins analyst at Wood MacKenzie, predicted in May Covid-19 would impact recycling.

By Renzo Pipoli