Changes to come

Markets for recycled high-density polyethylene (HDPE) have been stable throughout much of 2016, both in terms of supply and demand, sources say. However, virgin capacity that will be coming online this year and in 2017 could disrupt this stability, causing pricing and potentially demand to dip.

Relative stability in pricing

“The supply of HDPE mixed color and natural bottles has been relatively steady over the last three months,” says Jason Stephens, a broker with BlackBridge Investments, New York.

“We’re actually processing a little more material this year than last year,” says Scott Saunders, general manager of the recycling division of Troy, Alabama-based KW Plastics, a reprocessor of HDPE, medium density polyethylene (MDPE) and polypropylene (PP).

KW Plastics has more than 100 million pounds of silo capacity and can process more than 1 billion pounds of plastics annually.

As 2015 drew to a close, the supply of natural HDPE bottle bales was tight, running up the price for that material, Saunders says. That was followed by a 6-to-8-cent drop in HDPE pricing at the beginning of this year. He says that correction affected KW Plastics, interrupting shipments. However, prices have since stabilized and have even increased on the virgin side in September, he says.

In recent months, recycled HDPE pellet prices have stayed in the lower end of their normal trading range, Saunders says, reflecting the stability of HDPE bottle bale pricing. “HDPE prices really have not fallen to the lows of PET (polyethylene terephthalate), paper or metals,” he says. “Prices have stayed in their normal trading range—just on the lower side of that [range].”

Ed Handy, general manager of Plastic Revolutions in Reidsville, North Carolina, a recycling company that specializes in high-molecular-weight (HMW) plastics, such as drums, IBC (intermediate bulk container) totes, sheet and other dunnage materials, and that also processes postconsumer HDPE bottles, says he saw a price spike on incoming HDPE bottle bales that ranged from 20 to 25 percent in October. (This increase likely was in response to the rise in prime HDPE pricing, according to sources.) “It’s unsettling,” he says, “because we can’t get the price of our end product up.”

Handy says that increase in bottle bale pricing caused him to turn to Mexico to purchase material. “When pricing spikes on postconsumer material here, the price is more competitive coming out of Central America,” he continues.

Handy says he hopes pricing for postconsumer bottles will stay true to its normal pattern of decreasing in November and not increasing again until February.

Regarding nonbottle material Plastic Revolutions purchases, he says pricing has been stable to somewhat lower than it was one year ago.

Demand remains good

Jon Stephens, executive vice president of Houston-based Avangard Innovative, says reclaimer demand for the postindustrial HDPE his company handles is “robust.”

Avangard Innovative helps clients identify and collect recyclables generated in their operations.

“We try to go into higher end applications. We do a good job of that with natural. Mixed color is more challenging because of the color variance. Every year we do a little better.” – Scott Saunders, KW Plastics Recycling Division

Demand for postconsumer natural and mixed color bottles also has increased over the last three months, according to broker Jason Stephens.

Regrind and recycled pellet demand also remains healthy, with Saunders characterizing domestic demand for KW Plastics’ HDPE pellets as “good.”

He continues, “We try to go into higher end applications. We do a good job of that with natural. Mixed color is more challenging because of the color variance. Every year we do a little better.”

While Handy agrees that demand for recycled pellets and for clean regrind is good, he adds, “Any time virgin plastic prices are depressed, the recycled price is depressed, even if there is big demand.”

However, that is not always the case when it comes to natural HDPE pellets and regrind, which can sell at a premium to virgin material.

Regarding the HMW HDPE pellets Plastic Revolutions produces, Handy says demand has “really softened,” though it was showing signs of bouncing back in October, which he credits to an increase in virgin material pricing.

While Jon Stephens says demand for recycled material remains strong, he says he expects some softening at the end of the year as companies try to get their inventories down.

He says he also is concerned about how virgin capacity that is slated to come online could affect demand and pricing for recycled HDPE. “A lot of new capacity is coming online in the next six months,” he says. “But we are not running from this product line.”

The threat of growing virgin capacity

“In general, new expansion of virgin resin production is not good news for the recycled business in the near term,” says Joel Morales, the Houston-based senior director of polyolefins for the Americas with IHS Markit, which is headquartered in Englewood, Colorado. He adds that IHS is forecasting downward price trends as the result of this new capacity, which he describes as “unprecedented,” being introduced over a three-year period.

From the beginning of 2016, approximately 3 million metric tons of virgin polyethylene (PE) production capacity are slated to come online in North America by the end of 2017, Morales says. Most of the additions will occur on the U.S. Gulf Coast and will include legacy players like ExxonMobil, Dow Chemical and Chevron Phillips Chemical. The additional capacity is being built not only to respond to growing North American demand but more importantly to focus on export demand, with Morales saying a “significant amount will be earmarked for export.”

Latin America could be one such destination, according to a report by IHS, which shows that demand for all forms of PE in the region exceeds 7 million metric tons, though it currently has a net deficient in excess of 3 million metric tons. Per the report “IHS Chemical Special Report: Latin American Polyethylene Market: Supply Shortfalls, the Growing Opportunity,” that deficit will near 5 million metric tons by 2025.

IHS says the U.S. is on track to add more than 100 million metric tons of new petrochemical capacity by 2025, including 8 million metric tons of PE capacity in the next five years. The company says global PE expansion will reach almost 24 million metric tons by 2020.

“In general, new expansion of virgin resin production is not good news for the recycled business in the near term.” – Joel Morales, IHS Markit

HDPE is the most-consumed PE type in the region, IHS says, representing 43 percent of total PE demand. Morales says the brunt of this recent wave of capacity additions will hit the market toward the second half of 2017 and into 2018, and that’s when recyclers likely will feel challenged as they tend to have fixed material costs and are likely to see compression as virgin prices decline.

However, Morales says he believes in recycling’s staying power, adding, “Recycling is a big deal and it’s here to stay.”

By the end of the decade, Morales says he believes the market will regain balance as much of the virgin supply overhang will be absorbed. “Recycling should pick up at that point as virgin prices increase.”

Once this virgin capacity comes online, Jon Stephens says demand for recycled material may well come down to price relative to virgin material. However, he adds that competition for raw materials may lend stability to virgin pricing, keeping it from falling too low.

Jon Stephens remains optimistic about the future of recycled HDPE and plastics in general, saying, “The market is growing, demand is increasing. Brand owners are looking to incorporate more recycled content. It’s a good industry to be a part of. It’s a growth industry for those willing to invest and take risks.”

Saunders is less certain all the forecasted virgin capacity will come to light. He says he’s been hearing that new capacity has been coming online for five years. “It has not happened; it will only come online as it makes economic sense.”

The author is managing editor of Recycling Today and can be contacted via email at dtoto@gie.net.