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Recycling update: high noon in high-density PE.

It's showdown time in HDPE recycling. Competition has never been as fierce. Prices are the lowest they've ever been. Independent recyclers scream that they're being pushed out of business by prime resin companies' own recycle sales. And indeed, big resin companies admit to buying market share through selling recycled resin at a loss.

Today's low prices aren't likely to improve much because current HDPE recycle capacity utilization is only 57%, estimates Graham Packaging Co., York, Pa. (At 40 million lb/yr, Graham is the largest single recycler and user of recycled HDPE in the world.) Significant capacity additions are being planned by Graham and others. Yet there are no big new markets for recycle in sight beyond incremental growth by existing customers. And there's little hope of a legislative bailout: Minimum-recycle-content laws have yet to be enacted and are unlikely to help in the near term. So recycle prices will stay low and perilously close to those of virgin resin for the next two to three years, predicts Gerald Claes, director of environmental programs at Graham. "It's not a pretty picture," he remarks.

PRICES: IN THE PITS

The top of the recycled HDPE price scale is in the low- to mid-30[cents]/ib range for near-virgin-quality milk-jug resin for blown film. Reclaimers selling into bottle markets compete with virgin prices as low as 25-27[cents]/lb for Korean imports and 29-30[cents]/lb for domestic resin sold to large-volume customers. The occasional fire sale" offers lowquality milk-jug pellets in the high teens, competing with off-spec and industrial scrap. Several brokers say offquality milk-jug pellets have sold in the low 20s from Phillips Plastics Recycling, Tulsa, Okla., and 19[cents]/ib or less from Union Carbide Chemicals and Plastics Co., Bound Brook, N.J. Mary Mahoney, marketing director at scrap broker NPTC in Hulmeville, Pa., says, "Lots of off-spec HDPE is sold to companies that claim they're using post-consumer recycle. I know because I sell it."

Mixed-color HDPE copolymer from detergent bottles is the bottom of the barrel price-wise-so low that some recyclers can't afford to pelletize it. For the past nine months I haven't pelletized any mixed-color," says East Coast Recycling president George Glenn. "It's not worth it."

RESIN-COMPANY BASHING

Independent recyclers often blame major resin companies both for the glut of HDPE recycle and for their price problems. "The virgin resin guys are getting into the market and creating the same oversupply in recycle that they caused in virgin resin. Plastic recycling is a disaster," complains the head of a small independent recycler who sells his output to resin companies.

Today, most major commodity resin companies are involved in recycling in one way or another. Quantum Chemical Co. in Heath, Ohio, Union Carbide and Phillips all run their own recycling plants. Himont Inc. in Wihmington, Del., and Occidental Chemical Corp. in Dallas invested in partnerships with independent recyclers. Carbide, as well as Dow Plastics in Midland, Mich.; Exxon Chemical Co. and Solvay Polymers Inc. in Houston; Paxon Polymer Co., Baton Rouge, La.; and others either buy flake or pellets from independent recyclers or use them on a toll basis to process waste collected by the resin company. On the other hand, Dupont Co., Wilmington, and Mobil Chemical Co.'s Films Div. in Pittsford, N.Y., are themselves big consumers of recycled resin in fiber and film production.

Some of these resin companies are muscling into established HDPE recycle markets, offering price incentives for processors to switch from independent recyclers. Their pitch: Buy both virgin and recycle from the saine source and get a combined volume discount. Resin companies are also offering recycled HDPE on very long payment terms, further squeezing the independent recyclers who can't match these terms.

In one recent example, Owens-Brockway's Plastic Products Div. in Perrysburg, Ohio, which buys 25 million lb/yr of recycled milk-jug resin, switched from using several independent recyclers to buying nearly all its recycled resin from prime resin companies. "Resin companies have a leg up on the entrepreneurs in quality," says Owens-Brockway purchasing manager James Dubilzig. Owens-brockway still buys indirectly from one of its original independent suppliers, United Resource Recovery Inc. in nearby Kenton, Ohio. But now Owens-Brockway buys URR's pellets via a resin-company middleman, Paxon Polymers.

INTERTWINED RELATIONSHIPS

Although the independents may complain, many have come to depend on the resin companies to which they sell. URR's relationship with Paxon is just one instance. Waste Alternatives Inc. in Ocala, Fla., sells recycled resin to Union Carbide. East Coast Recycling Association Inc. in Millville, N.J. (formerly Wheaton Plastic Recycling Co.), toll sorts and grinds bottles for Carbide. South Eastern Recycling Inc. in Tuscaloosa, Ala., recycles PE film on a toll basis for Exxon (which also has a small recycling plant in Somerville, S.C.). Resource Plastics Corp. in Brantford, Ont., supplies recycle that Dow resells under its own label.

Sometimes the relationship between a resin company and an independent recycler is a true partnership, not mere tolling or private labeling. For example, OxyChem provided venture capital to recycler Enviroplastics Corp. in Auburn, Mass., in exchange for a marketing agreement and an option to invest in the future. OxyChem supplies technical capabilities for lab testing and product development, and also provides marketing credibility in negotiating long-term, high-value contracts such as one for worldwide supply of PCR for DuPont's Tyvek nonwovens. The typical relationship of independent recycler to resin company, however, involves no long-term obligations.

WHO'S IN CONTROL

Resin companies all say they lose money on in-house recycling. Quantum says it expects eventually to break even. Some of them also lose money on reselling the recycled resin they get from independent recyclers. For example, Paxon Polymers pays URR 27[cents]/lb for recycled-HDPE pellets and charges a major bottle customer 27[cents]/lb; but because Paxon pays the shipping, it loses a few cents/lb. And over the last six months, Carbide has sold off--at a steep loss--remaining inventory of HDPE that was tolled through independent recyclers before Carbide got its own plant running last year.

Why are these companies so apparently eager to do business at a loss? The answer appears to be to gain control of what is growing into a significant raw-material stream. The Freedonia Group in Cleveland published a market study in January that predicts steep growth in recycling of both HDPE and LDPE, from 23 million lb/yr in 1985 to 1.2 billion lb by 1996. HDPE recycling alone hit 286 million lb in'91 and will grow to 2 billion lb by the year 2000, Freedonia predicts. The American Plastics Council reports a 74% increase in milk-jug recycling in 1992 (see table).

At the same time, domestic markets for HDPE are growing only modestly at 5-6%/yr, leaving both pricing and capacity utilization fairly flat, say resin suppliers. So each pound recycled into packaging displaces virgin resin. This is in sharp contrast to the situation in high-growth PET, where recycling is not hurting virgin production.

"There are some visions of recycling that say the polymer industry should stick with virgin resin and leave recycling to others. But look what happened in the steel industry," said Terrance Mahoruk, manager of vinyl recycling at The Geon Co. (Cleveland) at a recent industry meeting. "The steel guys allowed ISRI [Institute of Scrap Recycling Industries] members to grow, and now they're huge. A third of all metal is recycled today. Are we going to tolerate an independent group handling one-third of all polymers?"

WHERE ARE THE SMALL RECYCLERS?

Resource Recycling magazine in Portland, Ore., which publishes an annual directory of recyclers, notes that 22 independent recyclers ceased operation or were bought out by other recyclers in the last year, leaving less than 100. Independent HDPE recyclers of any size probably number less than 10.

Price isn't the only pressure on small recyclers. SPI's Plastic Bottle Institute (PBI) is developing its first melt-flow standards for recycle. Given the variety in the waste stream, they will be achievable only by recyclers who can blend 100,000-lb lots, says Barry Wood, president of Resource Plastics. Until now, blending 40,000-lb lots has been acceptable. He says the new standards mean "we'll have to invest hundreds of thousands of dollars for new blending silos and feeding equipment. The standard is being used effectively as a mechanism to drive smaller players out. This is a difficult time financially for a small company to have to buy equipment."

Independent recyclers often question resin companies' motives in recycling because of a perceived conflict of interest. A pound of plastic recycled is a pound of virgin resin not sold, they reason. "There probably never was a better example of the fox wanting to guard the hen house," says independent recycler Marty Forman of Poly-Anna Plastic Products Inc., Milwaukee.

The resin companies' collective position on recycling is represented by the American Plastics Council (APC). This group of resin-company top executives set itself the goal of guiding the industry to a 25% annual recycling level for plastic bottles and containers by 1995. APC has come under increasing fire lately from independent recyclers, environmentalists, and government representatives for allegedly "abandoning" recycling. In 1993, only some $200,000 of APC's $50-million budget is for recycling market development, says an APC member who doesn't want to be identified. Roughly 16% of the $50 million will support mechanical recycling; the rest is for advertising, public image and technical support of durable-goods and mixed-waste recycling, including pyrolysis and waste-to-energy incineration--so-called "tertiary" recycling.

Procter & Gamble Co., Cincinnati, which bad been the only non-resin-company member of APC, pulled out in May. Although P&G won't comment, its defection was widely seen as a sign of displeasure that APC isn't doing enough to support conventional recycling. APC director of technology Peter Dinger says the switch of emphasis to technologies for using mixed, unwashed plastics is "to increase the overall level of plastics recycling." He says these other technologies will enable "using the so-called |third bale' that's thrown away now."

LOSS LEADER OR WHAT?

One rational explanation for why resin companies are so aggressively selling at a loss is to buy market share. Says Bruce Kuiken, Quantum's v.p. of resource recovery, "As recycle make an impact on virgin HDPE strategy option for a resin producer is to pick it up again in recycled HDPE." But he thinks that when resin companies offer to sell recycled HDPE below cost, "It can confuse processors and end-users about what the real cost issues of recychng HDPE are. This is in nobody's long-term interests."

It could be that some resin companies are selling at low prices only for short-term reasons like cash flow. There's a third possibility, suggested by one resin-company recycling official: It's possible that these low-price recycle wars are the early stages of a marketing strategy being played out by some resin companies that think HDPE recycling will fade away once it is recognized as a money loser."

This possibillity, as well as the market-control issue, is what has the independent recyclers so worried. A leading Wall Street chemical analyst says, "It's like what happened when Detroit bought out the companies making energy-efficient cars, or when the oil companies bought up solar-energy patents. Resin companies want to control recycling to destroy the independents in case some day there's money to be made in it" Resin companies interviewed for this article insist that they're not trying to put anyone out of business-it's just the economics of supply and demand.

So which way is all this headed? Processors feel it's too soon to tell. Says the manager of a major container company that buys recycle, "If I knew the resin companies would win, I'd want to be in on the ground floor with them. If I knew all the small guys would get together and get to be as strong as a Paxon, I'd want to go with them. We're waiting to see who's going to win and not choosing sides yet. We don't want to support one side over the other and be party to creating a self-fulfilling prophecy."
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Title Annotation:polyethylene
Author:Schut, Jan H.
Publication:Plastics Technology
Date:Jul 1, 1993
Words:2007
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