Quarterly Report – May 2021

After a tumultuous 2020, market conditions have changed dramatically in 2021. The state of post-consumer plastic recycling in the USA has improved, with healthy price increases on all scrap grades. Some people say that China’s National Sword import initiative was the best thing that ever happened to the US plastic recycling industry; it has taken several years but the American scrap plastic market is finally adapting to the policy change.

California’s MRFs (and likely others that historically exported) have changed the way they recover material from their lines by capturing plastic previously ignored and also separating into more grades. Because California is such a large market, these changes have attracted reclamation companies to the state in order to process what MRFs and recyclers are generating. There is a similar expansion of reclamation capacity in the Midwest and Eastern US. Another interesting development is that several major US haulage companies have implemented policies to stop offshore exports of any plastic scrap, as a direct response to the Basel Convention.

Focusing on the PET market, deposit PET bale prices climbed several cents per pound early in 2021. In February, virgin PET (vPET) capacity was reduced owing to weather-related plant closures in the southern US, which resulted in a spike in vPET prices. At the same time, the six- to 12-month contracts that many converters had signed during COVID-related recycled PET (rPET) shortages came to an end. Also, imported virgin prices climbed to the level of US virgin prices, in part due to extremely high ocean freight costs. This resulted in end users requesting more rPET from PET reclaimers. In the first quarter of 2021, Californian reclaimers increased their operating capacity by up to 25% while those in other regions boosted capacities too, which caused a shortage in bale supply. As a result, deposit PET bale prices climbed as much as 50% from the start of the year.

Kerbside PET prices climbed too, but less dramatically. Interestingly, bale prices were driven even higher by demand from export buyers in Europe and Mexico.

In late April, as virgin prices settled down a little, some end users reverted to buying vPET. PET reclaimers are beginning to struggle to market their flake because price increases mean rPET is reaching the same price as vPET. End users making sheet or thermoforms do not want to increase their costs based on the rPET flake market, despite the fact there is still some shortage of vPET resin. Once vPET supply/demand finds a balance, these end users will likely revert to buying vPET for their sheet and thermoforms, putting more pressure on PET reclaimers.

What may help is that orders for sheet imported from overseas are lagging because ports are still backed up and ocean freight rates remain high. Some port executives believe this situation will improve by late summer. It is likely that bale prices will remain strong in the USA and around the world as minimum content laws have an impact.

Historically, South East Asia has been a large purchaser of baled PET from the USA but low vPET prices in China have reduced demand for rPET. And even though freight rates have tripled, South East Asian rPET flake producers are exporting to the USA because of high demand.

Analysts expect vPET prices to drop by the third quarter of 2021, which may bring lower bale prices, although a decoupling of vPET and rPET is emerging owing to recycled content requirements and brand commitments. While bale supply remains an issue for PET reclaimers as they compete with this growing global demand, the combination of summer volumes and COVID easing may bring an increase in the quantities collected. Also, growth in PET thermoform collection and processing will increase rPET availability.

Such fluctuating pricing has resulted in a turbulent start to 2021 for PET recycling - hard on the heels of a turbulent 2020. Reclaimers are hoping conditions settle down soon.

By the first quarter of 2022, meanwhile, California’s reclaimers will be able to process all grades and volumes of post-consumer plastics generated by the state’s MRFs. In California, there are six reclaimers for PET bottles; two of them are also buying and processing thermoforms, while a company processing PET thermoforms only is scheduled to open in 2022.

HDPE natural demand is so strong now that the USA has started to import bottles from New Zealand and Australia. Indeed, processors in South East Asia are buying mixed bales from the USA and globally, sorting out the natural HDPE and sending it back to the USA. Prices for this grade are breaking records. There are three HDPE bottle (natural and colour) reclaimers in California.

Polypropylene (PP) is a hot commodity too, with more companies starting to buy and process this material. Three companies in California are beginning to reclaim PP, while the state also has a couple of reclaimers that are to start processing mixed plastic HD/PP bales; the material will be pelletized and sold to end markets.

LDPE and LLDPE film are also strong commodities. California has three reclaimers aggressively buying and reclaiming these grades, with some of the finished material going into making new bags. This development is being driven by Californian legislation requiring recycled content in trash bags.

Multiple companies are processing polystyrene (expanded foam and rigid), some of which is sent to Mexico and South East Asia to be manufactured into final products.

As can be seen from the above, the US post-consumer plastics market is healthy and growing.