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Packagers gain price cuts for recycled materials

Buyers of recycled plastics are seeing easing of prices, except for HDPE. Recycled paper prices have precipitously dropped as European economies stagnate.
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FILED IN:  Sustainability  > Strategy
     

Packagers may fare a little better this year than last when they go to specify recycled materials but the previous "roller coaster" of prices has experts reluctant to predict the future.

The world markets for all used commodities are off because of uncertain economic growth. Demand for finished goods is down. This has meant lower prices for all commodities including used aluminum certain plastics and paper.

Prices for recycled plastics have followed a little below virgin prices with polyethylene terephthalate (PET) on the way down because of increased virgin capacity and high-density polyethylene (HDPE) up 20% over the beginning of this year.

Recycled paper prices plummeted from a high of $232/ton for old corrugated containers (OCC) in April 1995 to zero last fall in some Northeastern locations. Recovery of prices did not occur in the first quarter as the paper industry had predicted. With poor demand for product prices for linerboard moderated this year down 30% from its high water mark in April 1995.

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An annual survey from the American Plastics Council estimated that 18% of all plastic containers were recovered for recycling in 1995 up 5%. A change in the way the APC counts recycled material-- counting baled bottles coming in the door rather than pellets out to market--helped increase the rate this time. APC estimates that more than 500 million lb of plastics are being recycled in about 7 curbside programs (the number of curbside programs collecting plastics is in dispute).

Recyclers are a bit more conservative in their estimate placing the figure somewhat below 500 million lb.

PET factors include Chinese buyers deposits

The recycling rate for PET bottles went down slightly: the overall rate from APC was 30% this time. This was because demand for PET soared 12% because of new bottle- making technologies increased popularity of the resin and use of PET in the smaller 16- to 20-oz soft drink bottles. The smaller bottles tend to be consumed more away from curbside bins.

The price of recycled PET soared to about 43¢/lb for baled bottles in April 1995 as Far Eastern plants outbid most U.S. buyers. The rate went back down to traditional levels by fall and it keeps falling now as more virgin PET capacity comes on line around the world.

With new capacity in production the price of virgin went from the 60¢/lb range to 57¢ to 59¢/lb by July 1996 and more off-spec resin became available. By mid-July 1996 the price of baled bottles had fallen to about 81/4¢/lb from a high of about 40¢/lb and appeared headed for 7¢/lb.

Marketers of baled bottles hit bottom in July 1995 when Chinese buyers suddenly stopped buying. That sent ripples throughout the world market. Since prices collapsed plastics quickly began to pile up in German warehouses where plastics recycling is highly subsidized by the "Green Dot" system.

Stories--pushed by the international environmental group Greenpeace--appeared in the Wall Street Journal accusing China of being a dumping ground for trash. Many of the Chinese buyers were victims of fraud observers now admit with trash buried inside bales of plastics.

"A broker can't see every bale going out the dock" commented one major West Coast broker of PET.

The reports created a political incident. It gave "liberal" environment officials an excuse to crack down on Communist-owned enterprises which use the recycled plastics for fiber applications by enforcing import licensing laws. In the fall China passed a major solid waste law effective April 1996. The law bans import of any material not on a list--plastics are not on the list--although paper is. However brokers say plastics are getting in illegally as markets are holding as of July 1996.

The market for PET soda bottles is heavily subsidized in California under the state's forced redemption law. The Plastics Recycling Corp. Sonoma CA must guarantee a price about 38.5¢/lb for the bottles from buy-back centers even though they can only sell bales for 7 to 8¢/lb. In the past most of the 6 million lb of plastic was exported to the Far East or to the East Coast.

Today there are two California recyclers that could handle all but 1.7 million lb of the material. There is no lack of demand for cleaned pellets at market prices (below virgin). However it is unclear how contracts will work out sources said.

Nationwide however the market for PET bales was poor in July with some material staying in warehouses from curbside programs because manufacturers preferred to buy the off-spec virgin.

Good demand for HDPE

The markets for HDPE have somewhat different factors since they go into different products that are not affected by deposit laws in 10 states. Many of the nation's top consumer product makers are using the post-consumer material in HDPE bottles today.

One recycler estimates the volumes (which include some PET) are as follows:

* Procter & Gamble: 50 million lb

* Clorox: 23 million lb

* Colgate: 10 million lb

* Lever Brothers: 7 to 8 million lb

* Reckitt & Colman: 3 million lb

The list of companies using the post-consumer RHDPE and RPET resin is well known by consumers. It also includes Dow Brands Ecolab Glidden Sherwin-Williams Chevron Quaker State and Church & Dwight to name a few.

In addition it is estimated that about 100 million lb of RHDPE goes into pipe another 20 million into flower pots.

The price for recycled HDPE increased about 20% in the last quarter supposedly in response to price increases on virgin HDPE. Mixed color bales went for about 6 to 9¢/lb in July 1996; natural homopolymer for 8¢/lb. While major users accept the fact that recycled material prices will stay a little below virgin recyclers privately say it does not have to.

In fact recyclers make less money when the price is high. That is because they must pay more for feedstock but cannot pass along price increases for 30 to 90 days. The spread gets smaller and profits are squeezed to nearly nothing when prices are high they say. Moreover "They (processors) put more trash in bales when the price is high" explained one major HDPE recycler.

The recycler claimed that one reason the prices go up with virgin is because virgin resin producers push it that way through their recycling subsidiaries. "If recycled resin was too cheap more companies would start using it over virgin" the recycler claimed.

There have been a number of resin producers going in and out of the recycling market. The current players include Phillips 66 in Bartlesville OK (HDPE); Montell (polypropylene) with a Baltimore plant; and the National Polystyrene Recycling Corp. (Bridgeport NJ) a consortium of producers.

Quantum Chemical (Cincinnati OH) closed its plant sold it then had to take it back because the buyer had problems with financing. More recently Union Carbide decided to close its Bound Brook NJ plant because of poor economics. The plant's capacity was about 50 million pounds though it is unclear exactly what the throughput was when it was closed. It had mastered a process to separate the colors of the resins plus it had received a letter of nonobjection from the Food and Drug Administration (FDA) for use of the masterbatch in certain food and cosmetic applications.

One observer claimed feedstock costs were high because some had to be shipped long distances. But Carbide said markets for the material and supply were both good. The problem appears to have been high overhead at that location with existing union contracts and margins that were too slim.

Procter & Gamble was a customer of Carbide's. Tom Rattray associate director of environmental quality at P&G said he was shocked at the announcement but did not have any other comment as to whether it will affect the 50 million lb P&G now uses. Terrence Bedell who handles environmental issues for Clorox Oakland CA said he did not think Carbide's exit would have much effect on use of the material overall since the plant's output was less than 10% of the national capacity.

How regulations affect

Various state laws apparently have had an impact on many companies' decisions to use recycled plastics in packaging but whether they are "needed" now is a matter of debate.

Florida's 2¢ advance disposal fee on rigid plastic containers sunsetted in October 1995. This forced manufacturers to track what bottles went into Florida and affected packaging decisions according to Florida officials.

California and Oregon have laws requiring manufacturers to use 25% post-consumer recycled plastics in rigid containers or source-reduce 10% or make them reusable if industry does not meet a 25% overall recycling rate by 1995. The rate was exceeded in Oregon last year and new conservative lawmakers exempted solid food containers.

California has proven to be a larger political battle. The state put off hiring its own consultant to assess the recycling rate so it ended up cooperating with the APC on its $300 study using surveys of recyclers and waste sorts. The survey calculated the recycled rate at 25.2%--just two-tenths of one percent above the number needed to exempt manufacturers from using recycled resin.

However the recycling rate using extrapolations of national resin sale figures developed by the Society of the Plastics Industry and Modern Plastics magazine came to 15.7%. Even the PET container recycling rate for California developed from other data was determined to be 38% which is below the 55% needed to exempt all PET containers from the law separately.

The large gap in numbers produced serious letters of protest from the Assn. of Post Consumer Plastics Recyclers environmentalists and two other consultants involved with municipal solid waste recycling programs. As a result the California Integrated Waste Management Board decided July 30 to postpone a decision and ordered staff to come up with a new method within 60 days that is repeatable and credible since the law requires calculations annually.

This put manufacturers back in limbo: the state could enforce the law in the meantime but it feared lawsuits since it had failed to do its part to establish a "rate."

Meanwhile the Grocery Manufacturers of America and food processors are now more determined to repeal the law in the legislature by next year. A bill that would have done that failed in the California Senate this year and another bill that would exempt food containers was on hold in the Assembly as of August.

P&G and Clorox have stated they will continue to use the same levels of recycled materials in their bottles even if there are no laws. (None of the major companies are citing the recycled content information on their containers. This was not found to have any effect on sales.) Bedell notes that the quality of the PCR material has improved greatly in the past few years.

Soft drink companies have abandoned the use of chemically-recycled or repolyermized PET in their bottles since most customers are very price-sensitive. There is a price premium for the repolymerized PET over the RPET that is mechanically processed.

"It's all economics" says C. Neale Merriam a Harvey Cedars NJ plastics recycling consultant. He found many plastics processors will use the recycled material but only if the economics are appropriate. "California would have been nice but it couldn't have carried the whole country" he admits. However many processors simply have not been asked by their customers to try the stuff he adds.

Smaller firms lack the resources to run tests and make other investments needed to make recycled content containers work.

"The California law was useful to jump-start [plastics recycling] but I'm not sure it has a significant impact on its own" Bedell said.

John Shedd president of Talco Plastics in California sees things differently. He is worried that if California's law is repealed his recycling business will be harmed. He believes that most manufacturers are not like P&G. Instead they are compliance-oriented and won't take the time to use the material even if it costs less because of a perception that virgin is better.

He feels the law helps to even the playing field. Industry observers acknowledge that without any laws pushing the markets some recyclers will have a difficult time getting financing.

Rattray said the plastics recycling market suffers from a lack of certainty over pricing. The Chicago Board of Trade now has a small exchange for recycled paper plastics and glass but Rattray said no official transactions are used to benchmark pricing. This will take several more years he added. Several publications publish prices but he feels something more is needed.

Patricia Moore President of Moore Recycling which also handles California's PET said she believes markets for recycled PET are softening as companies become less concerned about environmental issues this year. She is concerned that if manufacturers do not make enough of a market voluntarily they must expect more legislation at the state level.

Local governments will continue to collect plastics even if markets are poor since they can't turn it off easily. Recycling coordinators say they collect plastics as a "service to taxpayers."

Paper: shaky but off the roller coaster

Packagers suffered some major price hikes in corrugated and other board in 1995 as prices for linerboard soared 40%. Various demand factors--partly exports--drove recycled paper prices up in April 1995 to historic highs--over $200/ton.

This caused a push for more collection of used paper. Paper industry analysts thought demand for product would continue to be strong because Europe's economy was expected to recover from a recession last year according to an ecomonist with Weyerhaueser Corp. (Tacoma WA).

The prices caused a bit of a "mixed paper fever" in perhaps hundreds of cities across the U.S. Many communities started collecting mixed paper when it commanded $90/ton. Recyclables started to disappear from curbside bins. Some material recovery facilities received lower volumes of OCC because the material was being diverted to private brokers.

But the fever didn't last. The market for mixed paper was driven by mills that needed less expensive feedstock to use in box board and corrugating mediums. While a cold winter caused a temporary shortage of used fiber the hot prices plummeted to $30/ton in the Midwest by November 1995. Mills got fussier as they realized the waste paper contained too many contaminants for certain processes.

This left some cities with collection programs for a commodity that wasn't worth much by early 1996. This market shift caused some paper dealers to go out of business according to a 1996 survey of state recycling coordinators for State Recycling Laws Update.

The reason: demand for paperboard did not continue to grow as forecast. Customers stockpiled and held off buying. Meanwhile the European economies driven by France and Germany stagnated. This sent a strong message that rippled through the paper industry worldwide.

Even though "recovery" was predicted by March 1996 used fiber prices did not rebound and remained in the doldrums as of July.

Ken MacEntee publisher of the Paper Stock Report Cleveland OH predicts that inventories are being whittled down so the market will pick up by early fall because of the Christmas season. A corrugated buyer for Sonoco Products disagreed saying she thought paperboard inventories were still high for July.

Meanwhile packagers have been able to gain back most of of the price hikes on paperboard. According to Mark Arzoumanian of Official Board Markets Chicago the price of linerboard fell from a high of $530 to about $350/ton by July 1996.

Mary Cesar a consultant with Jaakko Poyry Tarrytown NY says paper companies everywhere are building capacity faster than the economy. She notes that when demand for finished products is lower packaging customers are getting less recycled post-consumer content in their boxes. That is because there are few mills that use exclusively recycled fiber. She agrees with MacEntee that there could be some price increase on paperboard in the fall but she and Arzoumanian are skeptical of markets for the near future.

"Italy and Spain are accusing U.S. mills of dumping paper at below market prices" Arzoumanian says. Exports of paper are off in 1996 and China has withdrawn from the market for a month to inspect incoming loads because of fraud.

High corrugated prices have served to push more manufacturers to try reusable shipping containers when the logistics are economical. Most experts acknowledge this has some effect on corrugated demand but more so in Europe than in the U.S. However no fugures are available on reusable container demand.

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