VINACHEM

The US recycled polyethylene (R-PE) market will continue to show diverging market trends in 2023, depending on the recycled resin grade. Sustainability-driven demand for material such as post-consumer, natural coloured recycled high-density polyethylene (R-HDPE) or recycled low-density polyethylene (R-LDPE) will continue to be robust as companies make progress against regulatory and voluntary post-consumer recycled (PCR) content targets.

Other grades, such as mixed coloured material or post-industrial material which are driven by cost-sensitivity, will continue to be impacted by recessionary headwinds throughout 2023, leading to softened demand and elevated supply on low purchase activity.

As evidenced by elevated natural coloured high-density polyethylene (HDPE) bale prices despite the current overall polyethylene (PE) market softness, sustainability-driven demand for specific grades of R-PE material is so strong that market trends will develop independently of overall virgin or recycled market conditions.

At present, natural post-consumer R-HDPE blow moulding resin maintains a +40% price premium to that of virgin.

Sustainability-driven demand stems from the desire to use recycled plastic in plastic packaging and products in order to meet both voluntary sustainability pledges of consumer brand companies, as well as to satisfy specific state regulation.

Snapshot of US plastics recycling related legislation

There are two main factors that distinguish sustainability-driven grades of R-PE. The first is that the source of recycled material is post-consumer, due to the fact that most consumer brand company pledges as well as state regulation require PCR content specifically, not just any recycled content such as post-industrial.

The second is that material must be able to be easily coloured to match any marketing design, which is why natural coloured material – such as R-HDPE from recycled milk jugs or R-LDPE from back-of-store film wrap – is so sought after.

Despite the fact that many recyclers are still separately cautious following the HDPE bale price crash in late 2021, the market continues to demonstrate an increasing trend in feedstock and thus finished pellet prices.

The US R-PE market remains systemically short when it comes to feedstock supply of natural, post-consumer material.

This has encouraged an increasing trend in plastic feedstock imports from across the globe, particularly from North American trading partner, Canada.

Furthermore, curbside collection infrastructure has seen, and will continue to see, improvements in sorting technology through private investment of several large waste management companies, along with government funding through programmes like the US Environmental Protection Agency’s (EPA’s) Save Our Seas 2.0 grants, the RECYCLE Act, or the Recycling Infrastructure and Accessibility Act (RIAA) passed in 2022.

Demand will also continue to grow in 2023, as companies separately rely more heavily on sustainability to elevate their brand and boost sales amid this period of market softness.

Amcor, who saw North American beverage packaging sales volumes decline 3% in their latest earnings release, noted they are seeing traction within their sustainability packaging offerings, with the sales reaching as high as tens of millions of dollars.

Berry Global, who primarily supports the US and Canadian packaging markets along with western Europe, noted they believe a primary growth driver for their company will be sustainability, despite the flat demand trend seen across their consumer-facing categories such as food and beverage packaging.

Much like in 2022, consumer brand companies are expected to continue to increase usage of post-consumer recycled plastic in their product packaging, in order to meet voluntary commitments and regulatory requirements.

According to the 2022 Ellen MacArthur Global Commitment Report, several global brand companies are still far from their 2025 PCR content pledges, with only 23% of brands and retailers on track to achieve their targets.

Though PCR content usage has doubled from under 5% in 2018 to 10% in 2021, the aggregate goal remains 26% by 2025 which would require an annual growth rate in content usage of 27% over the next three years, according to the report.

Connecticut is set to be the fifth state to mandate recycled content, as rule-making on the covered items, content percentages and timeline is supposed to conclude at the end of December 2022.

To meet this demand, not just feedstock supply but also recycling capacity must grow. Throughout 2023, several expansions and new facilities are slated to begin production.

2023 Capacity Expansions:

Republic Services, Inc, one of the largest waste management companies in the US, announced plans for an integrated waste management and mechanical plastic recycling facility in Las Vegas, Nevada, expected to produce approximately 45,000 tonnes/year of recycled plastic material, intended for food and beverage packaging. It is slated to be operational by 2023.

Myplas USA announced plans for a flexible film mechanical recycling facility in Rogers, Minnesota. Slated to be operational by spring of 2023, the facility will have an initial input capacity of nearly 41,000 tonnes/year of plastic waste.

Novolex, a packaging producer who caters to foodservice industrial markets, has announced an expansion of their North Vernon, Indiana, mechanical film recycling facility, reaching a new input capacity of over 18,000 tonnes/year by the end of 2023.

COST-SENSITIVE DEMAND

Traditionally, R-PE markets catered exclusively to cost-sensitive buyers, those looking for a lower-cost alternative to virgin or wide-spec material.

These grades of R-PE are constituted of both mixed-coloured or post-industrial material, which do not have the sustainability appeal and are typically used in non-consumer facing applications such as automotive, construction or secondary packaging.

Under the current macroeconomic situation, and as the threat of recession looms, overall demand for PE resin has fallen. As a result, virgin prices have come down substantially, thus exerting downward pressure on recycled resin prices which must maintain a deficit in order to be competitive.

At present, several recyclers have separately reduced production and are not actively sourcing feedstock due to weak downstream demand, as converters and end-customers continue to work off existing inventory or have switched to purchasing virgin or wide-spec material. This trend is expected to persist well into 2023.

As a result, feedstock supply of material such as mixed coloured HDPE bales, or post-industrial scrap, will continue to be ample on soft recycling demand.

Furthermore, cost-sensitive grades of R-PE are likely to be hampered by additional wide-spec material on the market in Q1, as a result of roughly 1.4bn pounds of new virgin PE capacity coming online.

Any improvement in these R-PE market conditions will hinge on the speed of the US economic recovery, or any unplanned changes in virgin availability which would re-incentivise R-PE substitution.