In the driver’s seat

Recycled-content plastic resins, such as recycled polyethylene terephthalate (rPET), have thus far carved out a comparatively small market share, so pricing of these secondary resins and the scrap that goes into them historically has not gained independence.

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

Ambitious government and corporate targets may now be severing these links to oil refining and virgin plastic production, according to Max Craipeau of Hong Kong-based Greencore Resources Ltd.

Pricing service S&P Global Platts in 2020 launched three daily spot price assessments in the United States for bales of PET bottles, taking a potentially important step in price decoupling. It can be seen as a recognition that many buyers and sellers of rPET and PET bottles have long been moving away from a virgin resin price connection.

Craipeau’s firm trades plastic scrap in both 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 in recycled-content rubber compounds.)

In an interview with Recycling Today, Craipeau offers his thoughts on how price decoupling between recycled-content and virgin resins already is taking place and how continued trends involving governments, corporations and household consumer behavior may well push decoupling forward.

Recycling Today (RT): What metrics have traditionally been used to place a value upon plastic scrap or recycled-content resins, using PET bottle scrap and rPET as an example?

Max Craipeau (MC): 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.

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

MC: 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—which makes it a very sustainable business. 

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

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

In 2020, rPET food-grade has still experienced a demand higher than the offer and sell (more or less) for the same price level as pre-COVID, despite virgin PET resin experiencing a roughly $300 per metric ton decrease in the same period. 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.

RT: To what extent do you see market conditions in place in some parts of the world to prompt plastic scrap price decoupling?

MC: 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. 

RT: What benefits would the recycling industry experience if the value of plastic bottles begins to rise to levels more commonly associated with aluminum cans?

MC: 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 paid for recycled content drive up collection and processing, turning the whole value chain into a profitable business. This benefits not only all stages of the value chain, but also the environment.

RT: To what extent can price decoupling move beyond PET bottles into other recycled-content polymers, such as automotive thermoplastic olefin (TPO) bumper regrind, or crumb rubber?

MC: 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 (HDPE), TPO or even crumb rubber, which remain the “poor relatives” of the recyclables, due to lack of such regulations in place.

RT: Might there be unintended (bad) consequences if plastic scrap prices no longer had a connection to virgin oil or resin prices? Could this be removing a type of “floor” on prices that sometimes helps recyclers?

MC: Helped with consumer pressure and legislations 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 vs. 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.