Markets for recycled high-density polyethylene (HDPE) in the United States have been stable throughout much of 2016, both in terms of supply and demand, according to industry sources.
However, virgin capacity that will be coming online in the near future in the United States that is intended in part to serve export markets could disrupt this stability, causing pricing and potentially demand for recycled HDPE to dip in the short term.
Relative stability in pricing
“The supply of HDPE mixed colour and natural bottles has been relatively steady over the last three months,” says Jason Stephens, a broker with BlackBridge Investments, New York City, referring to the U.S. market.
“We’re actually processing a little more material this year than last year,” says Scott Saunders, general manager of the recycling division of Troy, Alabama-based KW Plastics, a reprocessor of HDPE, medium-density polyethylene (MDPE) and polypropylene (PP).
KW Plastics has more than 100 million pounds in silo capacity and equipment to process more than 1 billion pounds of plastics annually. The company’s extrusion lines range from 6 inches up to 12 inches with single- and twin-screw extruders.
As 2015 drew to a close, the U.S. supply of natural HDPE bottle bales was tight, running up the price for that material, he says. That was followed by a 6-to-8-cent drop in HDPE pricing at the beginning of this year. Saunders says that correction affected KW Plastics, interrupting shipments. However, prices have stabilised and have even increased on the virgin side in September, he says.
In recent months, recycled HDPE pellet prices have stayed in the lower end of their normal trading range, Saunders says, reflecting the stability of HDPE bottle bale pricing. “HDPE prices really have not fallen to the lows of PET (polyethylene terephthalate), paper or metals,” he says.
Ed Handy, general manager of Plastic Revolutions, Reidsville, North Carolina, a recycling company that specialises in high-molecular-weight (HMW) plastics, such as drums, IBC (intermediate bulk container) totes, sheet and other dunnage materials, and that also processes postconsumer HDPE bottles, says he saw a price spike that ranged from 20% to 25% in October on incoming HDPE bottle bales. This increase likely was in response to the rise in virgin pricing, sources say. “It’s unsettling,” Handy says, “because we can’t get the price of our end product up.”
Handy says that increase in pricing caused him to turn to Mexico to purchase material. “When pricing spikes on postconsumer material here, the price is more competitive coming out of Central America,” he continues.
Handy says he hopes pricing for postconsumer bottles will stay true to its normal pattern, generally decreasing in November and not increasing again until February.
Regarding the nonbottle material that Plastic Revolutions purchases, he says pricing has remained stable or somewhat lower than it was one year ago.
Demand remains good
Jon Stephens, executive vice president of Avangard Innovative, Houston, says demand from reprocessors for the HDPE materials his company handles is “robust,” particularly when it comes to postindustrial material.
Broker Jason Stephens says demand for mixed colour and natural HDPE bottles has increased from mid-August through mid-October.
Demand also remains healthy for regrind and recycled pellets, with Saunders characterising domestic demand for KW Plastics HDPE pellets as “good.”
He adds, “We try to go into higher end applications. We do a good job of that with natural. Mixed colour is more challenging because of the colour variance. Every year we do a little better.”
While Handy agrees that demand for recycled pellets and for clean regrind is good, he adds, “Any time virgin plastic prices are depressed, the recycled price is depressed, even if there is big demand.”
However, that is not always the case when it comes to natural HDPE pellets and regrind, which can sell at a premium to virgin HDPE material.
Regarding the HMW HDPE pellets Plastic Revolutions produces, Handy says demand has “really softened,” though it was showing signs of bouncing back in October, which he credits to an increase in virgin material pricing.
While demand for recycled material remains strong, Jon Stephens of Avangard Innovative says he expects some softening at the end of the year as companies try to get their inventories down.
He adds that he also is concerned about how virgin capacity that is slated to come online could affect demand and pricing for recycled HDPE. “A lot of new capacity is coming online in the next six months,” he says. “But we are not running from this product line.”
The threat of growing virgin capacity
“In general, new expansion of virgin resin production is not good news for the recycled business in the near term,” says Joel Morales, the Houston-based senior director of polyolefins for the Americas with IHS Markit, which is headquartered in Englewood, Colorado. He adds that IHS is forecasting downward price trends as the result of this new capacity, which he describes as “unprecedented,” being introduced over a three-year period.
Approximately 3 million tonnes of virgin polyethylene (PE) production capacity are slated to come online in North America by the end of 2017, Morales says. Most of the additions will occur on the U.S. Gulf Coast and will include legacy players like ExxonMobil, Dow Chemical and Chevron Phillips Chemical. The additional capacity is being built not only to respond to growing North American demand but more importantly to focus on export demand as well, with Morales saying a “significant amount will be earmarked for export.”
Latin America could be one such destination, according to a report by IHS, which shows that demand for all forms of PE in the region exceeds 7 million tonnes, though it currently has a net deficient in excess of 3 million tonnes. Per the report “IHS Chemical Special Report: Latin American Polyethylene Market: Supply Shortfalls, the Growing Opportunity,” that deficit will near 5 million tonnes by 2025.
“We try to go into higher end applications. We do a good job of that with natural. Mixed colour is more challenging because of the colour variance. Every year we do a little better.” – Scott Saunders, KW Plastics Recycling Division
IHS says the U.S. is on track to add more than 100 million tonnes of new petrochemical capacity by 2025, including 8 million tonnes of PE capacity in the next five years. The company says global PE expansion will reach almost 24 million tonnes by 2020.
HDPE is the most-consumed PE type in the region, IHS says, representing 43% of total PE demand.
Morales says the brunt of this recent wave of additional capacity will hit the market toward the second half of 2017 and into 2018, and that’s when recyclers likely will feel challenged as they tend to have fixed material costs and are likely to see compression as virgin prices decline.
However, Morales says he believes in recycling’s staying power, adding, “Recycling is a big deal and it’s here to stay.”
By the end of the decade, Morales says he believes the market will regain balance as much of the virgin supply overhang will be absorbed. “Recycling should pick up at that point as virgin prices increase,” he adds.
Once this virgin production capacity comes online, Jon Stephens says demand for recycled material may well come down to price relative to that of virgin material. However, he adds that competition for raw materials may lend stability to virgin pricing, keeping it from falling too low.
Jon Stephens remains optimistic about the future of recycled HDPE and plastics in general, saying, “The market is growing, demand is increasing. Brand owners are looking to incorporate more recycled content. It’s a good industry to be a part of. It’s a growth industry for those willing to invest and take risks.”
Saunders is less certain all the forecasted virgin capacity will come to light. He says he’s been hearing that new capacity has been coming online for five years. “It has not happened; it will only come online as it makes economic sense.”