RECYCLING AT $60/BARREL
The recent fall in the price of crude oil has caused a similar decline in some raw manufacturing materials. This is especially true if you work in the plastics industry. The cost of virgin plastic resins has been declining on pace with crude oil since last fall. This is causing a strain on the recycling industry where the drop in crude oil pricing has led to tighter competition between virgin and post-consumer plastics.
This could lead to an altered landscape in terms of plastics recycling as a whole. Typically, municipalities earned money for selling discarded plastic waste to recycling firms, to be processed and resold to manufacturers. The price paid could be as high as $10/ton in places such as New Jersey where there is a high population density and manufacturing demand for recycled materials. (Kantchev & Ng, 2015)
These prices were typically contracted, tying the sale price of the waste material to the commodities pricing with minimums put in place. However, in light of recent lower prices for virgin resin, some expiring contracts have been re-negotiated, thus removing the groundwork for the existing pricing model that could, in turn, make recycling a money pit for the municipalities in question. (Kantchev & Ng, 2015)
Current pricing for virgin PET resin, used in plastic bottles, is between 82-87 cents/lb. with post-consumer material coming in at 68-76 cents/lb. according to information available from Plastics News. (Esposito, 2015) This lower pricing for virgin materials is causing manufacturers to reevaluate their production methods due to the preference of virgin over recycled because its chemical composition is more precisely specific. This, coupled with the belief that consumers are not willing to pay more for a product simply because it is recycled could lead to severe changes in plastic recycling. (Kantchev & Ng, 2015)
In many densely populated areas in the northeast of the United States, landfill availability is scarce and expensive. This would likely cause municipalities to simply pay for their plastic waste to be recycled and pass the cost on to the taxpayer. However, in smaller, more rural areas where waste processing is not as rigorously regulated and landfills are readily accessible, the trend could shift away from recycling plastics in an effort to save money. (Kantchev & Ng, 2015)
In the European market, most notably the United Kingdom, 2 major recyclers have failed since December of last year. ECO Plastics Ltd. who opened what they labeled, “the largest plastics processing facility in the world” in 2012, slipped into a form of bankruptcy protection with their assets being acquired by a German investment group Aurelius. (Kantchev & Ng, 2015) (Aurelius Investments, 2014)
In London, where they produced 1.1 million tons of plastic waste in 2010, approximately 33% was recycled. This is a number they were hoping to increase to 50% by 2020, yet that projection could be in jeopardy due to the falling price of virgin resin. (Kantchev & Ng, 2015)
However, falling oil prices are not the only culprit in this scenario. Government policies mandating higher uses of recycled plastics have caused a boom in recycling facilities in the US and Europe. This type of saturation to the market is now weighing heavily with the demand for post-consumer material shrinking. (Kantchev & Ng, 2015)
Prices of new resins had previously slumped during the 07-09 recession yet, in the current economic upswing, the sharp decline in price has come as a shock to many. People in the US have been surprised by the improving economy juxtaposed with falling commodity prices. This has historically been a basic of supply and demand principals wherein; you can count on inflated commodities prices when the populous has robust access to jobs. However with the demand for oil down due to various environmental efforts, such as: automobiles with improved fuel economy and high efficiency homes, we may be witnessing a permanent shift in oil demand.
(Kantchev & Ng, 2015)
The current atmosphere of environmental awareness and consciousness to reduce waste in landfills will still be a heavy factor in this matter. It will surely aid in deciding whether or not manufacturers will continue utilizing recycled materials at such a high rate. That said, with current projections forecasting that the price of crude oil will remain at or around $60/barrel well into 2016, the post-consumer plastics market could take a serious hit regardless of environmental sentiment. (Reuters, 2015)
Aurelius Investments. (2014, 12 12). Aurelius Investments Press Releases. Retrieved from Aurelius Investments: http://aureliusinvest.com/en/press/press-releases/aurelius-uebernimmt-eco-plastics/
Esposito, F. (2015, April 6). Plastics News Resin Pricing. Retrieved from Plastics News: http://www.plasticsnews.com/resin
Kantchev, G., & Ng, S. (2015, April 5). Recycling Becomes a Tougher Sell as Oil Prices Drop. Retrieved from The Wall Street Journal: http://www.wsj.com/articles/recycling-becomes-a-tougher-sell-as-plastic-prices-drop-1428279575
Reuters. (2015, April 7). Markets, Oil prices fall as Goldman Sachs says prices have to remain low for months. Retrieved from Economic Times: http://economictimes.indiatimes.com/markets/commodities/oil-prices-fall-as-goldman-says-prices-have-to-remain-low-for-months/articleshow/46832346.cms