Delayed Reaction

The downturn in pricing that has been affecting commodity markets for scrap metals and recovered paper has spread to secondary plastics. While paper and metals saw sharp declines in demand and pricing in late September and early October, the downturn did not affect plastics markets until November, according to sources.

"Generation is probably steady, but because demand is sown both here and overseas, supply is high, which is bringing down the market," a recycler based in Illinois says.

While a recycler based in the Southeast says she was taking orders through the end of October, her customers began calling during the first full week of November with requests to cancel or postpone them. "We had to take some price reductions even though they had a purchase order," she adds.

The recycler notes the rapid decrease in pricing. "I never saw it do that before," she says. "We heard some rumblings, and suddenly [the orders] just stopped."

She says pricing for polypropylene (PP) decreased by nearly 30 percent, while pricing for HMW-HDPE (high-molecular-weight high-density polyethylene) declined by nearly 40 percent from October.

Part of the problem is that off-spec material is being dumped on the market for next to nothing, the Southeastern recycler says. The downturn seems to be affecting commodity grades especially hard, she notes, adding that engineering grades appear to be holding their own in comparison.

"Demand on everything is down, but commodities are really bad," a reprocessor based in Illinois says.

Based on what her customers are telling her, the Southeastern recycler says she expects buying to resume in the first quarter of 2009. "They are working their inventories down to nothing," she says of consumers. "People who bought heavily because the demand was so high are now stuck with a lot of high-priced material."

A recycler based in the Midwest says baled PET has declined from 15 or 16 cents per pound to $20 per ton, when he can move the material. He notes that reclaimers are still buying PET from redemption programs, but the price has declined some 13 cents per pound.

As with metals and paper markets, China’s recent opting out of the market is being blamed for the bulk of the declines. "A lot of it relates back to China shutting its doors," says the Midwest recycler. "Who knows what is going on there. I had one person tell me that 40 percent of the banks in China are facing insolvency," he says.

"China is bad, really bad," the Illinois reprocessor says of the country’s demand for secondary plastics. "Our export sales are a fraction of what they were a month ago."

He continues, "PP and PE (polyethylene) are dead overseas, and in the U.S. demand is declining. Prices are down even for wide spec and virgin."

The Southeastern recycler says that while everyone expected China’s buying to pick up following the Olympics, instead, "Export markets have dried up to nothing." As a result, she predicts, "I think overall a lot of business relationships are going to change."

The Midwestern recycler reports that he has heard estimates export buyers will begin purchasing material again in December.

In the meantime, he jokes, "I can probably get as many shipping containers as I want right now."

Domestically, the recycler based in the Midwest says Trex has basically shut its doors to new shipments of film, as has AERT. "Trex has gotten picky about the thickness of the LDPE (low-density polyethylene) in bales," he adds. "Everything has to be 3 millimeters or thinner. Quality is going to become a huge issue. If they can get good, pristine shrink wrap at $200, why take dirty at $100."

The Illinois-based recycler says domestic buyers are only buying what they need right now. "Many customers are cutting off purchases until after the first of the year."

The Midwestern recycler predicts a number of companies that are new to the plastics recycling industry will not survive this market downturn. "A lot of companies, like small recyclers that haven’t been around for a long time, aren’t going to make it," he says. "The competition is going to be weeded out."