Opportunities grow for rPET, but recycled polyolefins face challenges from virgin

Joel Morales, senior director, polyolefins Americas, for IHS Markit, is even more bearish regarding the outlook for virgin polyolefin producers in 2020 than he was in 2019 given the new production capacity that continues to come online in North America. Morales and his colleague, Tison Keel, senior director, PET, PTA and EO derivatives, IHS Markit, shared their perspectives on how virgin production could influence demand and pricing for recycled plastics during the Resin Markets Update plenary session at the Plastics Recycling Conference & Trade Show. The event, organized by Resource Recycling, was Feb. 17-19 in Nashville, Tennessee.

Morales, who is based out of Houston, said investment in polyolefin production is occurring in North America because of the abundance of inexpensive natural gas arising from the fracking boom. The rest of the world must use crude oil to produce these resins, which is more costly than natural gas. He added that Brent crude would need to sell for $14 per barrel before U.S. producers lost this cost advantage. Brent crude was selling for nearly $60 per barrel as of mid-February.

Global polyethylene (PE) production capacity is exceeding demand growth for this resin, resulting in a supply overhang that has lowered prices for virgin, Morales said. (In many cases, recycled natural high-density PE has been higher in price and, therefore, less attractive than virgin and off-spec material.) In the last year, that situation was exacerbated by the slowing global economy, the U.S.-China trade war, sustainability concerns that lowered North American demand for the resin and market uncertainty, he added.

“PET overall has a great story. It is the most widely and easily recycled material. The investment potential is high, and PET could replace less-recycled plastics.” – Tison Keel, IHS Markit

The backlash against single-use plastics concerns Morales, who said he fears demand will decrease further as brand owners announce they are transitioning away from plastic packaging.

Keel, who also is based in Houston, said recycled polyethylene terephthalate (rPET) production is increasing by an annual rate of 11 percent globally. It is expected to grow from 1.6 million metric tons today to 2.9 million metric tons by 2025. Virgin production, on the other hand, is expected to decline by 0.5 percent annually, he added.

He added that virgin PET producers are seeing an economic opportunity in vertically integrating into rPET production, citing Indorama Ventures’ purchase of Custom Polymers, Alpek’s purchase of Perpetual Recycling Solutions LLC and Far Eastern New Century’s purchase of Phoenix Technologies International.

Tison also said that chemical recycling advancements have the potential to change the economics of rPET in the long term.

He added that given the low collection rate for PET bottles, brand owners will have trouble realizing their recycled content commitments in the U.S. “It is stuck a little below 30 percent and it hasn’t moved in several years.”

He said “bottle bills work” to increase recovery, adding that if more states were to adopt them or the national bottle bill legislation that has been proposed in Congress is adopted, “supply could increase quickly.”

Tison concluded, “PET overall has a great story. It is the most widely and easily recycled material. The investment potential is high, and PET could replace less- recycled plastics.”