According to research commissioned by the Continuous Improvement Fund (CIF), major market trends that shaped the year included rising virgin material costs, evaporating export markets, ballooning transportation costs, and diminishing supply and demand. CIF is a joint industry-government initiative funded by brand owners as part of Ontario’s extended producer responsibility program for residential recycling.
It was a challenging year for the recycling industry, and although some of the struggles have been framed as opportunities for investment, the report offers a less-than-rosy outlook.
“Given the above forecasts, combined with a downturn in U.S. recyclate markets, it would be a stretch to believe that any significant investment in traditional technologies will be made to address this market shortfall,” the report states.
The factors that contributed are as follows:
- Low energy costs have spurred a flood of new investment in virgin plastics production. Plastics Recycling Update, sister publication to Resource Recycling, previously reported on several of the U.S. expansion projects that are underway. “There will likely be a dramatic increase in the production of virgin resins during the next three years, leading to lower, possibly much lower, prices,” according to the report. It adds that polyethylene (PE) will likely feel the biggest impact, followed by polyethylene terephthalate (PET) and polypropylene (PP). “The full impact of shale energy investments are expected to start to bite in 2018 and carry forward past 2020,” the report notes.
- China’s import restrictions shaped the export market during the past year. The report notes this has “effectively eliminated access to the Chinese recycled plastics markets,” and that so far, there doesn’t appear to be an end date for the restrictions. The paper cites a growing trend of Chinese companies investing in the U.S. to process material here and ship it to China as pellet; however, the report says “the economics for these types of ventures have always been questionable.”
- Supply and demand on a wider level are a problem as well. On the supply side, collection volumes have fallen for PET and high-density polyethylene (HDPE) bottles. And contamination in plastic bales has increased, according to the report. Meanwhile, falling virgin prices and tough-to-find end markets are straining demand for some low-value recycled plastics. Clean film will likely continue to find use in the bag-to-bag and composite lumber sectors, the report predicts, although prices could tumble. But highly contaminated film is a different story, particularly in the face of Chinese buyers “exiting the market,” the report states. “Film bales generated by MRFs will have great difficulty finding markets, and those markets that might emerge will most likely have no value especially as virgin prices continue to slip,” according to CIF. As for harder-to-recycle materials, which sometimes cause bale contamination, CIF offered a stark opinion on the place of those materials in the stream. “Eliminating PVC, PS, PLA and PETG from the plastic packaging stream would significantly improve the economics and quality of PET, PE and PP downstream recyclate,” the group wrote. “There is no application that currently uses these resins that could not be replaced by a recyclable or recycling friendly alternative.”
- It was a year marked by rising transportation costs, and in some cases, industry insiders have told Plastics Recycling Update the freight costs have been more damaging than the loss of China as an export market. The CIF study cites a shortage of drivers, compensation increasing in order to attract new hires, additional electronic logging device requirements and other factors pushing costs higher. Trucking realities for the plastics recycling industry, according to the report, are “changing rapidly.” The plastics recycling sector will be more affected than virgin material producers, according to the report, because the virgin material sector more frequently relies on rail.
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