Following a Difficult Couple of Years are Plastic Recyclers Getting the Upper Hand of Low Oil Prices? : IN DEPTH: Out of the Oil Price Gloom for Plastics Recycling

When stories from the world of waste appear in the mainstream media, you can be sure the subject is a big deal for the industry itself. The impact of the oil price slump on the plastics recycling industry is a case in point. With the price of a barrel of crude dropping from around $105 in June 2014 to a paltry $28.50 by January this year, it became increasingly difficult for recycled plastics to compete with virgin materials on price.

Adding to the “perfect storm” the fall in oil prices came hot on the heels of a slowdown in demand from China and changes to the composition of plastics in the waste stream.

Major investments were at stake, many struggled, some went under – unable to swim in the rising tide of cheap oil. As far back as April last year, less than 12 months into the slump, the Wall Street Journal published an article titled “Recycling Becomes a Tougher Sell as Oil Prices Drop”, while the Financial Times ran with “Plastic recyclers point to meltdown in face of low oil price”.

Speaking with WMW, Keith Freegard, director and founder of Axion Recycling Ltd., explains that one of the problems faced by some plastics recycling firms when the oil price crashed was that the prices they had agreed with their customers were linked to the price of virgin material.

“In a nine month period they saw HDPE go from £1400 to £700 ($1800 to $900) per tonne, and they were linked to that index so they were immediately losing money,” he says. “A massive slice of the costs are capital investment, operating costs, labour, maintenance – all the things about running a recycling business. Plus, if you’re a young business, a massive amount of debt to be repaid – you can’t take the huge downturn in price that you could if you’re attached to a global firm’s oil refinery.”

It’s just such circumstances which led to one high-profile casualty in the UK – Dagenham-based Closed Loop Recycling. The firm had invested heavily in high-tech equipment allowing it to process waste packaging, PET and HDPE bales into high quality food-grade pellets at its 65,000 tonne per year plant.

Having initially hit trouble a couple of years back, the company was subsequently taken over by an investment firm, but ultimately it was unable to cope with the economic headwinds and in May this year the administrators were called in.

However, that was not to be the end of the story and in July the plant was acquired by Veolia, which with its deep pockets and wealth of feedstock seems perfectly poised to take advantage of the dedicated processing capacity.

While there has been much coverage of the problems facing plastic recyclers, as Steve Alexander, president and chief executive officer of the Association of Plastic Recyclers (APR) - a Washington, DC based international trade body - explains, it’s not all doom and gloom.

“This industry’s been here for a long period of time and every time the oil prices decline people predict the death knell of plastic recycling, but the reality is we’ve been through these peaks and valleys before and we’re still here,” he tells WMW.

Alexander adds that the industry is driven by much more than just the price of oil: “You have companies which have made shareholder commitments in terms of sustainability and their use of recycled materials. The reality is that in today’s world they expect their containers to be not just recyclable, but to contain recycled content – and they make purchasing decisions based on that.”

It’s a point reinforced by Richard Kirkman, technical director at Veolia UK and Ireland:

“Plastic recycling has been in a bit of turmoil over the past couple of years with the oil price going down as far as it did, but I think that there is a recovery happening and the future could be much brighter. We see from our customers growing pressure for them to use recycled material, and as they make changes in their manufacturing processes so that they’re set up to use recycled material, we find that that demand is sustained.”

Alexander also notes that in the United States there are regulatory requirements in certain states with respect to recycled content for certain applications, so regardless of prices, there are certain demand forces that continue to support the utilisation of recycled material in the market.

According to Alexander the demand side has never been the issue. The issue for recyclers has always been to try and source enough quality feedstock to meet the market demand.

“The market demand has seen a little bit of a blip in recent months, although it’s coming back pretty strong, but that’s more a reflection of the overall economic picture globally which has really reduced consumer purchasing of certain products,” he explains. “But historically speaking there has never been a problem for recyclers to sell their output. There’s always been more demand than there has been supply. Our challenge has always been to secure enough good feedstock to process.”

Supplying that feedstock is both an opportunity and a challenge for the waste industry, as Kirkman explains: “Recycling is a series of steps. It’s not ‘put it in the bin and it gets recycled’. The bins have contamination in them and that has to be removed. At every step we’ll have some rejects, which is normal for manufacturing, but you always aim for the best quality because the best quality commands the highest price.”

For Alexander the technological developments in sorting technology over recent years has been a huge driver for increasing the quality of material coming out of the first stage of material recovery facilities.

“New technologies come on board, more material is separated, more material is made available for recycling, which helps us meet growing demand in the market place,” he says.

According to Freegard, whose own firm has a major stakeholder in the auto recycling business, the answer to dealing with unsteady markets is having shareholder models where there’s a real long term vested interest for the whole group, and making sure that the shareholders are also the stakeholders in the value chain.

“Veolia purchased Closed Loop in Dagenham,” he notes. “What a sensible thing. They’ve got a load of bottles which they could just be selling on the open market. But by owning the actual conversion plant they can run the whole value chain – collection, primary sorting and conversion. It gives the best yield all the way through.”

“There needs to be a long-term partner,” adds Freegard. “Either on the inward supply side or on the output side, so that the business gets locked into a long-term supply chain and they take their eye off of following the volatile trends of the markets and oil price.”

For waste companies collecting and sorting wastes it’s important to recover as much plastic material as possible to either sell or recycle themselves. According to Alexander, while PET and HD containers have historically been a staple for the industry, polypropylene - which is used in underground pipes, garden furniture and industrial applications - is the fastest growing recyclate on the marketplace.

“There’s tremendous demand for that material and there’s an infrastructure that’s now been developed,” he explains. “There’s also tremendous demand for recycled film and flexible material - and we have a foam reclamation programme. It’s a whole evolution that’s happening and it’s not just focused on one resin. It’s focused on all resins across the board.”

For Veolia, which collects huge volumes of waste and recycling from across Europe, the vertically integrated multi-polymer model seems an obvious one. At its plastic recovery facility in Rainham, UK, where it sorts plastic materials from its waste and recycling collections into their respective resins, HDPE accounts for around 35%, PET approximately 35% and PP 10%.

Just a few months ago there was considerable unease in some sectors of the plastics recycling industry. Expensive high-tech plants were being mothballed. But with some consolidation and altered business models the industry has stabilised without too much collateral damage.

Going forward Kirkman believes that the future is bright. “It looks good for PET, PP and HDPE”, he says, but adds that there are some issues with polystyrene because there’s not a huge demand for it. There’s also some issues with PET trays as the manufacturing is not to the same high standard as for PET bottles. The value of the PET bale is being diluted with the trays.

Another problem that the industry is looking to solve in partnership with packaging firms and sorting equipment manufacturers is black food trays, which are often missed in the sorting process because they are the same colour as the conveyer.

One option being explored is to put a marker chemical in the material they are made from, which the sorting equipment can spot, although this would require the collaboration of all the manufacturers globally.

“In the long term there needs to be a conversation between producers and manufacturers of packaging materials about how they might modify how they make things,” says Kirkman. Firstly about using recycled product in the things they make, and also about other materials which we find difficult to recover.

Alexander agrees, and the Association of Plastic Recyclers is working with a number of major brands to improve product design. The major brands, he says, are keen to embrace the idea and progress is being made rapidly to improve the recyclability of plastic packaging materials.

“More and more material is going to be available for recycling and more and more consumer product companies are going to be using recycled material,” concludes Alexander.

It would seem then that while the waters may still be a little choppy for the plastic recycling industry, the gloom is lifting to reveal better weather ahead.