David Cornell, Technical Director, The Association of Postconsumer Plastic Recyclers, Washington

Plastics recyclers are presently riding the same crude oil roller coaster that has confounded the rest of American industry this year. High crude oil prices last summer meant expensive petrochemicals. The competitive materials to recycled plastics — i.e., virgin plastics — were selling at all-time high prices. Meanwhile, the price of a bale of post-consumer bottles had not risen dramatically. As such, recyclers had a larger margin to work with than usual, and if the recyclers had ready access to good raw materials, things looked rosy.

But what rises also falls, and fall it did. Crude oil fell from $145 a barrel in early July to under $50 a barrel in mid-November. Prices for other commodities, which had increased alongside crude, crashed. Used mixed residential paper prices fell to essentially zero. Prices for bales of bottles fell 75 percent for polyethylene terephthalate (PET) and 65 percent for pigmented high density polyethylene (HDPE). Recyclers, like other manufacturers, are concerned about being caught with an expensive inventory of raw materials. Lines of credit, the lifeblood of business, have withered. Since recycling involves considerable shipping of materials, high fuel costs hurt the entire recycling infrastructure. A credit shortage hurts when the financial markets are in apoplexy.

Given consumer demand for green products, most manufacturers are looking for ways to improve their sustainability. One of the most popular methods is to use materials containing recycled content. Recycled materials are "renewable" in the sense that their use involves no new depletion of limited resources. This means there is strong demand for post-consumer recycled materials for use in plastics packaging and other applications in addition to economic considerations.

But one of the less appreciated impacts of the sustainability effort in packaging is the effect downsizing (reducing the size of and/or amount of material used in product packaging) has on recycling. As the bottles get thinner and smaller, the label, barrier layers, closures and pouring spouts become a higher percentage of the bottle. Thin sidewall layers become harder to separate efficiently. High levels of polypropylene appear in HDPE because closures stay the same size even as bottles are made smaller for concentrated laundry products, creating quality issues for the recycled HDPE. These changes result in higher yield losses and lowered values for raw materials even as the marketplace demands a higher quality product.

The low value of the U.S. dollar, part of the reason the price of crude oil soared as high as it did, meant for a time that all U.S. exports were enhanced. Those enhanced exports included bales of postconsumer PET and HDPE bottles, the raw materials U.S. plastics recyclers need to sustain and grow their businesses. According to 2006 PET recycling data, more than 50 percent of the PET bottles collected domestically were exported. Expect the 2007 and 2008 PET export rates to be as high or higher. HDPE recyclers also were experiencing an export drain. U.S.-baled bottles are considered premium quality in many export markets. Hyperactive buying of U.S. bales of bottles, particularly on the West Coast for export to China, led to a run up in bale prices. Higher prices for bales please those collecting bottles, but inflated bale prices lead to deterioration of profit margins for U.S. recyclers when the recycler's product prices do not also rise.

The strong export market had another effect. Offshore buyers who say "send it all" effectively lowered the quality of the bale by enabling the inclusion of unwanted material. This declining quality is an issue for U.S. recyclers. The "send it all" philosophy entices material recovery facility (MRF) operators who must move material, as they have a fixed supply of material coming into MRFs and find it is easier and cheaper to bale all bottles together than to sort for purity. In the fourth-quarter 2008, as overseas buyers take a holiday and exports fall, the MRFs are choking on unshipped bales.

Will the export market come back? Certainly. When? That's unknown. Selling bales under contract to U.S. recyclers can sometimes alleviate the situation, but sellers need to understand the differences between spot and contract markets. Contract markets assure buyer and seller of future materials flows, while spot sales offer no assurance of any future sales. MRF operators can help protect themselves by increasing the quality of their bales, thereby increasing the bale worth and marketability.

Earlier this year, plastics recyclers enjoyed good prices and high demand. But those favorable conditions were tempered by the limited availability of raw materials and raw materials that were of lower quality. Now, with the opposite extreme of the business cycle imposed in only a matter of weeks, reclaimers still have orders for product, but need higher quality bales. The message to collectors and MRF operators is clear: quality and long-term relationships with domestic buyers really do matter.

David Cornell
Technical Director
The Association of Postconsumer Plastic Recyclers
Washington