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Coronavirus pandemic shakes up supply fundamentals for US plastic recycling


Away-from-home sales slow to recover

Prices see limited impact despite early supply tightness

Houston — The US plastics recycling industry is struggling to regain its footing as the coronavirus pandemic upended its business model, potentially leaving many recyclers at risk of shutting down.

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When the pandemic prompted widespread shutdowns in late March and April, millions of workers left office buildings to work from home, cutting off sources of bulk supply of plastic bottles -- made from polyethylene terephthalate -- from businesses.

Since lockdowns began, large consumer beverage brands have seen significant declines in away-from-home volume sales. The dearth of sporting events, concerts and other crowd-heavy gatherings, as well as closures or limited operations of bars and restaurants, have slashed bottled drink purchases across the US. Additionally, at-work sales remain sluggish as well since many offices have yet to return to capacity, if at all.

For instance, Coca Cola reported in early April a 25% year-on-year decrease in away-from-home sales, translating into a heavy decline in on-the-go packaging demand. As some economies slowly began to reopen, those sales volumes recovered 10% by June, bringing the total second quarter company losses to 16% on the year.

Despite a recent slowdown in volume loss, CEO James Quincey said uncertainty caused by the pandemic remains significant as regions experience resurgence in infections, prompting renewed shutdowns or slowing emergence from them.

Commercial volumes down, residential up

Recycling markets do not follow the typical supply-demand trends. Consumers control the supply of curbside PET available for processing, commodity value having no influence over behavior. And because municipalities or local governments control how that supply is collected and entered into the value chain, the entire recycling system is dependent on community programs that are oftentimes only funded by taxpayers.

This leaves curbside recycling programs very vulnerable to budget cuts that are felt up the entire value chain. In addition, residential recycling costs are oftentimes subsidized by commercial recycling customers as they usually generate far larger loads than households.

For recycling and waste management companies, business and restaurant closures directly impacted the number of commercial volumes available for recycling, with some of the largest haulers in the country seeing significant declines in early spring. Waste Management, the top waste hauler in the US, saw an overall 25% reduction in total commercial volumes, said Brent Bell, company vice president of recycling, in a July 8 webinar.

On the other hand, residential tonnages have surged since the start of the pandemic-related lockdowns as more people work from home and buy consumer goods and products online, Bell added.

Additionally, because dine-in services remain limited in most parts of the US, takeout orders from restaurants are surging. Restaurants that traditionally serve over-the-counter fountain drinks to customers are switching to bottled beverages for takeout. As delivery orders spike, so too has food-packaging waste, including PET, found in recycling bins.

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However, because many municipalities suspended recycling programs at the height of shutdowns on labor shortages or tax dollars redirected to other services, such as traditional trash pickup, a lot of this supply never found its way into the recycling system.

As municipalities reopen, some local governments have permanently shut down curbside recycling programs, rendered too expensive amid shrunken tax revenues. Therefore, a lot of recyclables are now being landfilled, as landfilling fees are typically cheaper than the cost of processing recycled material.

Limited impact on curbside bale supply

Despite these disruptions, the curbside post-consumer PET bale market, the feedstock for recycled PET flake, did not see prices rise as any supply tightness was met with incredibly weak downstream demand for rPET fiber, often used as a polyester replacement and primarily produced in the Midwest.

Demand for bottle bale feedstock has slashed as global manufacturing came to a near stoppage in May. Most of the demand for this material comes from the textile, carpet, pipe, and automotive industries concentrated in the Southeast region of the US

The recycled PET fiber market is more cost-sensitive than the bottle-to-bottle market as it is a low-cost, low-margin business.

"Half of our rPET goes into fibers," said Darrel Collins, executive director of the National Association for PET Container Resources. "Both the strapping and carpet business has been very poor, especially in May. If you're really only focused on apparel fibers or strapping, you're in trouble."

Prices in the Midwest PET bale market have steadily decreased since the start of the pandemic despite a tightening supply as reclaimers worked through inventory or stopped production altogether. The monthly average fell to 7 cents/lb in July from 9 cents/lb in April, S&P Global Platts data showed.

As more curbside collection programs resume, recyclers are now finding themselves with too much supply amid limited demand. In addition, some large carpet manufacturers are suspending their nationwide voluntary subsidy programs for carpet recycling, taking even more money out of the value chain, and pushing some processors and many carpet collection companies out of business.