In the driver’s seat

Recycled resins, such as recycled polyethylene terephthalate (rPET), have carved out a comparatively small market share, so their pricing and that of the scrap that goes into them historically has not gained independence from virgin resin prices.

Instead, products like rPET and feedstock such as beverage containers most often have traded at prices pegged to a more widely produced virgin resin. Those prices, in turn, are often linked with oil and natural gas pricing and production, which can be markets very far removed from the supply and demand landscape for rPET or recycled-content packaging.

Government and corporate targets are severing these links to oil refining, natural gas and virgin plastic production, according to Max Craipeau of Hong Kong-based Greencore Resources Ltd. Craipeau’s firm trades plastic scrap in Asia and Europe and operates reprocessing plants in Indonesia and Poland. He also serves on the Plastics Committee of the Brussels-based Bureau of International Recycling (BIR) and is chair of the BIR’s Tyres & Rubber Committee. (Greencore also trades recycled-content rubber compounds.)

In an interview with Brian Taylor, senior editor with the Recycling Today Media Group, Craipeau offers his thoughts on how price decoupling between recycled-content and virgin resins already is taking place. He also shares how continued trends involving governments, corporations and household consumer behavior could push decoupling forward.

Q: What metrics have traditionally been used to place a value upon plastic scrap or recycled resins?

A: Traditionally, virgin resins have been used as a benchmark to set the price of their recycled counterparts, typically using a discount on the virgin price. It has been the case historically for all resins, including rPET which, however, has now experienced a solid decoupling with virgin for the past few years—for food-grade rPET, most notably. This is contrary to most other resins, which still mostly follow the virgin trend.

Q: Can you describe any shortcomings or complaints this previous model is creating for collectors, processors and buyers of recycled resins?

A: In times of low oil prices, because the price of virgin is correlated to oil prices, the price of postconsumer recycled material becomes insufficient to drive collection and processing. It has been the case for all resins. Now, in the post-COVID-19 era, it is true for resins that do not find outlets at the price level at which they should be sold. It is, thus, difficult for non-PET resins to maintain a sustainable business model. It is, however, less and less true for rPET, which now tends to attract a price premium—most notably for food-grade rPET.

Q: What market factors were necessary for the value of collected PET bottles and the rPET produced from them to “decouple” from virgin polymer prices?

A: The main factor derived from demand, and the best way to drive the demand was and still is a combination of sustainability goals from FMCG [fast-moving consumer goods] brands, reinforced by legislation toward mandatory recycled content. This has proven true even during and after the COVID-19 crisis.

”Once a mandatory recycled-content regulation is in place, the demand starts to become bigger than the supply, which naturally drives prices up.” – Max Craipeau of Hong Kong-based Greencore Resources Ltd.

In 2020, food-grade rPET still has experienced demand higher than what is available and sells (more or less) for the same price level as it did pre-COVID, despite virgin PET resin experiencing a roughly $300-per-metric-ton decrease. As a comparison, all other recycled resins (most notably those used in construction and automotive, which have little to no brand sustainability goals or legislation support) are experiencing a terrible crisis, resulting in many bankruptcies of collectors and processors.

Q: To what extent do you see market conditions in place to prompt plastic scrap price decoupling?

A: First of all, such regulations result from end-consumer demand and not the other way around. It has been the outrage resulting from unsustainable practices (the use of high-carbon-footprint materials by bottlers; the ocean plastic issue, etc.) that has pushed governments to legislate toward something recycling-friendly. Europe is a pioneer in such regulations, with a decree (implementable in all 27 EU member states) forcing PET bottlers to incorporate a minimum of 25 percent of rPET in their bottles by 2025 and 30 percent by 2030.

This move—on top of increasing consumer pressure—has translated in practice into major bottlers in Europe already incorporating the 25 percent mandatory recycled content. Some bottlers already incorporate up to 100 percent, as they realized there was a correlation between higher sales and higher recycled content. The United States, with California as a pioneer, also is seeing a rise in such regulations. This is occurring for PET and for low-density polyethylene (LDPE) in that state. Major brands across the world no longer wait for such regulations to be implemented locally to start incorporating recycled content into their bottles as consumer pressure is rising everywhere in the world.

Q: What benefits would the recycling industry experience if the value of plastic bottles rises to levels commonly associated with aluminum cans?

A: In Southeast Asia, where we have a factory, the material price offered by recyclers is one of the major determinants of increased or decreased collection via a trickle-down effect to the informal sector. It’s also true in more developed countries, where higher prices for recycled content drive up collection and processing, turning the whole value chain into a profitable business. This benefits all stages of the value chain and also the environment.

Q: To what extent can price decoupling move beyond PET bottles into other recycled-content polymers?

A: Cause and effect; once a mandatory recycled-content regulation is in place, the demand starts to become bigger than the supply, which naturally drives prices up. Contrary to fossil fuel feedstock, from which virgin plastics are made, recycled feedstock is more limited or difficult to access. This, in turn, naturally supports the pricing upward no matter what happens to their virgin counterparts linked to oil price variations. Thus, if such mandatory recycled content were to be extended beyond the “popular” PET resin, the whole recycling value chain and the planet would greatly benefit from it. I think that holds true for LDPE, high-density polyethylene, [thermoplastic olefin] or even crumb rubber, which remain the “poor relatives” of the recyclables due to lack of such regulations in place.

Q: Might there be consequences if plastic scrap prices no longer had a connection to oil or virgin resin prices?

A: Helped with consumer pressure and legislation toward more recycled content, it’s obvious that decoupling will be the trend for more and more resins in the near future. Recycled plastics will follow their own supply and demand market, which, in turn, will naturally set their prices. There will be levels below which producers will simply stop producing, as is the case for any primary commodities.

However, contrary to primary commodities markets, legislation such as plastic taxes (where the virgin content in a product is taxed aggressively to discourage its use versus recycled material), coupled with an increasing scrap feedstock shortage—an unavoidable trend which we see more and more in the U.S. and Europe—will definitely support a continuous upward trend in pricing. In my opinion, this will unlikely lead to prices lower than in the previous 20 years. 

The author is the senior editor for the Recycling Today Media Group and can be contacted at btaylor@gie.net.