2019 Plastics Recycling Conference: Virgin plastics' influence on PCR markets

Analysts based in Houston with IHS Markit, speaking during a session at the 2019 Plastics Recycling Conference and Trade Show, said it’s shaping up to be a buyer’s market for virgin polyethylene terephthalate (PET) and polyethylene (PE) in 2019. While polypropylene (PP) “has been tight globally,” said Joel Morales, senior director of polyolefins, North America, for IHS Markit, it is “becoming more balanced” now that the U.S. is “swimming in supply.”

Unfortunately, this is not good news for reprocessors of these polymers, as prime prices will be very competitive given their abundant supply and more off-spec material likely will be available at a discount, the analysts said.

Tison Keel, senior director of PET, PTA (purified terephthalic acid), EO (ethylene oxide) and derivatives at IHS Markit Chemical, said he sees four challenges for recycled PET (rPET) in the year ahead. “The cost for producing high-quality bottle-grade rPET is really not going to change much,” he said. “If anything, it has gone up and it is more likely to go up than go down,” Keel continued, noting the low bale yields reprocessors are seeing as a factor contributing to this trend. “The best case is that the cost to produce rPET is going to be flat; it could be higher. In any case, it is higher than the price to produce virgin PET.”

He added that consumers of rPET were publishing “pretty ambitious goals” for recycled content in their containers and questioned whether they would be willing to pay higher prices for this material. “I’m not saying they won’t,” Keel said. “Historically, in North America, they have not. In Europe, now they are, for a number of reasons.”

The second challenge is competition from the fiber industry for PET bottle bales. “The fiber industry on a global basis consumes more than 75 percent of the PET that is currently recycled,” Keel said. “The appetite for scrap PET in the fiber industry is bottomless,” he added, noting the cost-effectiveness of using recycled material over virgin.

Another hurdle rPET must overcome is the low North American recycling rate. “How are we going to meet the demand that is being laid out there by brand owners when the collection rates are so low?” Keel wondered. “I don’t have an answer for that.”

Keel also mentioned how virgin PET producers are integrating into the mechanical recycling area. “It is a trend that is very interesting that we are going to have to watch to see how it plays out,” he said. “Are they going to change the dynamic of recycling and in what ways will their technologies and PET production be able to interact with recycled technologies to change that market.”

These same companies also are investing in chemical recycling that converts PET back into its component monomers. Keel said, “If technically and economically feasible—which we don’t know yet—these could be very big market disruptors” within eight to 10 years.   

For prime PE, 2018 was somewhat unusual, Morales said. “The world got 3 million metric tons worth of demand from the scrap ban in China. They just turned that into prime usage,” he said. “We don’t see another scrap ban of that magnitude in the forecast.”

Despite China’s increase in prime PE consumption, the U.S.-China trade war has been “a disaster for U.S. PE producers,” Morales said. Since China implemented its tariff on this material Aug. 23, 2018, "U.S. producers have lost 3 to 5 cents per pound, maybe even more by the end of the year, on every pound produced, whether they are exporting or selling domestically—just a complete disaster for that industry from a margin perspective," he said.

Buyers of prime PE will enjoy more competitive prices, with recycled material being stuck somewhere in the middle, Morales said. “Off-grade wide spec has been at very aggressive prices. We are seeing that bottom lift up and expect it to moving forward, however, not much because of these conditions,” he added, pointing to factors that include the growth in virgin production.   

The Plastics Recycling Conference and Trade Show was March 11-13 in National Harbor, Maryland, outside of the District of Columbia.