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Never enough: demand from China affects access to reclaimed PET and HDPE in North America.

Reclaimers of polyethylene (PET) and high-density polyethylene (HDPE) continue to be plagued by the same problem that has affected the plastics recycling industry for years--a low recovery rate for used containers.

PET bottle recovery has been especially depressed, as consumers increasingly do their beverage consuming away from their homes and the convenience of their curb side recycling bins.

Overseas demand for the materials, particularly PET, has exacerbated the supply problem and helped to increase the price of post consumer resin (PCR). Although Chinese buyers are not always a steady presence within the North American market for post-consumer PET and HDPE, they have been known to buy large quantities of the materials when they do make an appearance.

CONSTRICTED SUPPLY, According to the "2003 National Post-Consumer Plastics Recycling Report," the overall recycling rate for PET and HDPE bottles, which comprise 96 percent of the total bottle market, held steady at 21.8 percent. Individually, HDPE achieved a recycling rate of 24.8 percent, up slightly from 24.2 percent in 2002. While PET bottle recycling increased 41 million pounds to 838 million pounds in 2003, its recycling rate actually declined three-tenths of a percent from the 2002 figure of 19.8 percent, according to the study, which the engineering consulting firm R.W. Beck conducted for the American Plastics Council (APC), the National Association of Post Consumer Plastics Recyclers and the American Beverage Association.

The study attributes PET's declining recycling rate to "the continuing expansion of the market for plastic beverage packaging," which is affected by variations in the containers and the difficulty associated with capturing bottles consumed outside of the home.

While these figures represent domestic recycling rates for the United States, demand for post-consumer bottles is not limited to domestic reclaimers. According to the R.W. Beck study, 321 million pounds of PET bottles, or 38.3 percent of the total bottles recovered for recycling, were exported in 2003, while 100 million pounds of HDPE, or 12.1 percent of the bottles recovered, were exported.

The study cautions, however, that these numbers may be underrepresented in light of the number of export brokers handling PET and HDPE, which makes the materials difficult to track accurately.

Much of the overseas demand for post-consumer PET is coming from the textile industry, while post-consumer HDPE is going into bag and pipe applications.

"I would say 85 percent of the demand comes from Chinas textile industry," Jose Boza, business development manager for Houston-based plastics reclaimer Avangard Industries Inc., says.

Demand from Chinese markets, however, is inconsistent, with buyers entering the market for a couple of months and then disappearing for a few months, Arthur Ferguson of KW Plastics in Troy, Ala., says. KW Plastics processes recovered HDPE and polypropylene.

In light of this inconsistency and the cost associated with shipping from the East Coast, not all material recovery facilities in North America are quick to export their plastics offshore to the highest bidder.

RESISTING THE CALL. Bill Renkema of Haycore Canada Inc., Russell, Ontario, says the company is "making a strong effort" to keep its PET and HDPE bottles within North America, despite almost daily inquiries from Chinese buyers.

"In general, the Asian markets tend to come in, buy blocks of tonnage and then disappear," he says. "It's on-again-off-again every few months."

MRF operator Casella Waste Systems is also making an effort to keep its recovered PET and HDPE within North America. "We have about 20 plants in our division and we are exporting very little," says Paul O'Donnell, director of commodities for Casella Waste Systems, Charlotte, N.C. He says roughly 90 percent of the company's recovered PET ships domestically, while all of its HDPE remains in the domestic market.

However, Casella's plants are located in the eastern half of the United States, and most exporting occurs from the West Coast. O'Donnell says this is because export is less competitive off the East Coast because of higher freight costs. But he also points out that export demand "affects the whole market, whether they are pulling from here or not."

The "global market" is no longer just a concept, but a reality whose impact is "felt by everyone, regardless of what you are doing," O'Donnell says. "You are going to be affected by their actions and their demands on the marketplace," he says of overseas buyers.

The effect of overseas demand also can be seen on pricing for post-consumer PET and HDPE.

CLIMBING PRICES. The restricted availability of reclaimed PET and HDPE has affected the pricing of the material, driving it up to new highs.

"This is the highest that I've ever seen HDPE and PET in the 10 years I've been in the business," Renkema says. He adds that HDPE and PET pricing has been heating up for more than a year. "I haven't seen a hot market last this long for as long as I have been in the business."

Jean Bina, supply chain manager of Bowling Green, Ohio-based Phoenix Technologies, says exporters have contributed to the price increases. "Exporters have driven prices up considerably, often bidding against each other and further exacerbating the situation," she says. "We are in a daily crunch to find enough good material at a competitive price."

Phoenix Technologies makes PET resins from post-consumer plastics.

"What we are experiencing here right now is that demand for scrap bottles is greater than supply," O'Donnell says. This imbalance results in "fundamentally higher" prices for reclaimed PET and HDPE, he says. "Until more bottles are collected or demand notches down a little bit, that will probably [continue to] be the case."

Judith Dunbar, manager of the APC's Technical Assistance Program, also notes the imbalance between demand and supply. "There is significantly more capacity to reclaim PET and HDPE bottles than there is supply," she says. "While the situation has been slowly improving for HDPE recyclers, such is not the case for PET reclaimers, who have been outbid by export markets."

Renkema and O'Donnell note there has been a push recently to bring scrap HDPE prices down.

"Virgin HDPE dropped between 4 to 6 cents per pound and is expected to drop more, O'Donnell says. "The price of virgin has a direct impact."

He adds that while HDPE pricing increases gradually over time, pricing for the material drops in larger segments. "It might take three months to get a 3-cent increase," O'Donnell says. "But in one month, it goes down 3 cents."

Pricing and demand for reclaimed PET and HDPE is related to pricing for their virgin counterparts. "As the delta price advantage of PCR materials vs. virgin increases, the usage increases," Bina says. "When virgin materials soften, usage drops almost instantly."

"Higher plastic prices are causing plastic manufacturers to consider recycled containers and other lower priced options," Boza says. "It's tough for the manufacturers to pass every raw material price increase to their consumers quickly, so in a rapidly increasing market, the only solution is to consider a lower priced feedstock."

Dunbar says manufacturers are doing their best to pass increasing raw material costs on to consumers, but large shifts in consumption toward post-consumer resins are a long way off. "Until more recovery occurs of post-consumer plastics, we don't expect to see fundamental shifts in raw material consumption," she says.

Unfortunately, higher scrap prices for HDPE and PET have not historically affected recovery rates for post-consumer material, unlike with aluminum cans.

"Yes, higher raw material prices encourage manufacturers to look for a lower cost feedstock, but there are not many under-tapped sources of raw material," Patricia Moore, president of Sonoma, Calif.-based Moore Recycling Associates Inc., which specializes in markets for plastics, says. "Higher prices for scrap have not increased recycling rates. Recycling rates are not linked to the value of scrap."

With prices for post-consumer PET and HDPE enjoying record highs, domestic reclaimers should be enjoying wider margins, though some are feeling pressure.

HOLDING STEADY. Bina says things are tight for consumers of PCR. "They are being squeezed by all their raw materials suppliers: corrugated, plastic, utilities ... everything is going up, while the big brand name companies that use the containers produced by these manufacturers are demanding further price reductions," she says.

According to the R.W. Beck survey, the PET bottle recycling industry was stable throughout 2003, with 14 reclaimers in the industry and a capacity use rate of nearly 59 percent. However, Plastipak Packaging/Clean Tech of Dundee, Mich., acquired Amcor's North American PET recycling operations in the fourth quarter of 2004, reducing the number of companies to 13.

The HDPE recycling industry also remained relatively stable throughout 2003. According to the R.W. Beck study, 30 companies identified themselves as HDPE reclaimers, one more company than in 2002. Capacity use in the HDPE recycling industry was 68 percent in 2003, an increase of almost 6 percent from 2002.

Ferguson says consumers of recycled HDPE would continue to grow if the recovery of post-consumer HDPE increased. "I would say that there is an adequate supply of post-consumer bottles to be recycled," he says, "but they are not being collected."

The same is true of PET. "The PET recovery rates have been dropping steadily, and the demand is growing," Renkema says. "There is something missing in the middle with the public."

Single-stream collection programs and better consumer education can help to capture more post-consumer bottles for recycling, Renkema says.

"Recycling has been around for 20 years now, so maybe it's getting old with the public," he says. "We need to put a new shine on recycling."

RELATED ARTICLE: Shadowing virgin markets.

Some reclaimers note a relationship between higher petroleum prices and the increasing price of virgin plastics, which helps to drive up pricing for reclaimed PET and HDPE.

Patricia Moore, president of Sonoma, Calif.-based Moore Recycling Associates Inc., which specializes in markets for plastics, says that while the link is indirect, higher petroleum prices generally lead to higher value scrap.

Jose Boza business development manager for Houston-based plastics reclaimer Avangard Industries Inc., agrees, saying a correlation does exist between petroleum pricing and recycled resin pricing, but that t is low. The ratio of supply to demand is a larger influence. "Recycled PET and HDPE prices have steadily been increasing because the supply has remained largely the same, but the demand has been increasing."

Moore attributes the growth in demand to escalating virgin resin prices. she says, "Whenever virgin prices increase, more companies look to recycled for a lower cost feedstock." Because the price of virgin plastics is high currently, Moore suspects more companies are turning to PCR.

The author is managing editor of Recycling Today and can be contacted at
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Title Annotation:COMMODITY FOCUS
Comment:Never enough: demand from China affects access to reclaimed PET and HDPE in North America.(COMMODITY FOCUS)
Author:Toto, Deanne
Publication:Recycling Today
Geographic Code:1USA
Date:Jul 1, 2005
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