Market Indicators
Over the past two years, traders, manufacturers, and procurement teams that purchase, sell, or process HDPE (high density polyethylene), PP (polypropylene), and PET (polyethylene terephthalate) in the US have experienced one thing: rising prices. Currently, prices are continuing to rise, albeit with less momentum than earlier in 2021. Price increases apply to all forms of these plastics—both to the raw material forms (baled scrap as well as post-industrial purge, preforms, etc.) and to the various commoditized forms (flake and pellet). While these price increases are indeed a sign of increased demand across the economy as a whole, there are several microeconomic factors at play that affect plastics industry professionals.
These aforementioned types of plastics have all gained considerable value over the past 10 months. Even “A”-grade LDPE post-consumer film has increased in value. This is notable because post-consumer LDPE film is a fickle material—many times, much of the material is unusable due to contamination, making it prone to claims. Perhaps most notably, HDPE natural has made pricing extreme gains, breaking records on a monthly basis since early this year.
While there are various reasons for substantial price increases of recycled plastics, it’s informative to look at the history of how market prices for various plastic types have changed. The most provocative upward pricing movements have occurred with both HDPE natural and HDPE mixed color—from raw material to commoditized forms.
Historically, price increases for HDPE natural and mixed-color bales occurred cyclically: sometime around mid-summer, processors began increasing their orders, taking a large chunk out of existing supply which in turn applied upward price pressure. Upward pricing pressure would peak early into the next year, and bale prices would begin to fall, reaching a nadir by early summer. As our research demonstrates, however, the market has not acted in accordance with these historical norms.
Methodology for Pricing Scrap Plastics
We examined data from www.recyclingmarkets.net, a paid subscription service. This site collects a variety of plastic pricing data from MRFs, balers, and processors. We found that recyclers in the Southeastern United States pay the highest price for all types of single-stream bales (except deposit grade PET—recyclingmarkets.net only has data on this type for the Southwestern Region—which includes Los Angeles).
We also compared these “picked up” (that’s exworks for those unaware of American-market jargon) to the national average for “picked up” rates. Then, we calculated the monthly average from the given data points—each month had at least 4 price observations. Thus, if logistics are feasible, MRFs and balers would most likely prefer to sell their single-stream bales of HPDE-natural, HDPE-mixed, PP-mixed, and PET-curbside clear to SE-region processors, who pay a premium for this material.
Source: recyclingmarkets.net, Island Leaf Research
Source: recyclingmarkets.net, Island Leaf Research
Source: recyclingmarkets.net, Island Leaf Research
Source: recyclingmarkets.net, Island Leaf Research
While the average monthly pricing for each type of plastic scrap begins an upward trend in differing months, all price spikes for the current run occurred around the end of the third quarter and beginning of the fourth quarter in the year 2020. Our research also demonstrates that all bale types, except PET clear, experienced an uptick around the same Q3/Q4 transitions in 2019, although prices dropped back to more tame levels during the 1Q2020. By early 2021, however, all three types of plastic scrap began to defy this trend.
To put it simply, what is causing this intense and sustained spike among the popular forms of post-consumer recyclables?
With our industry experience and willingness to continually educate ourselves, Island Leaf Commodities is keen to explain what we believe the major drivers behind these price increases are. We believe these upticks in prices are a result of changing corporate behavior in the packaging industry that favors recycling professionals more than ever. And, plastic processors’ compliance with Food and Drug Administration (FDA) regulations sheds further light on this phenomenon.
Catering to Consumer Preferences
Better Consumer Habits and Corporate Responsibility
To say that plastic pollution has exponentially increased over the past few decades is an understatement. In 2018 alone, less than 10% of all plastics generated in the US reached the recycling stream, according to recent EPA data. Although the same EPA report mentions that plastics recycling is becoming more prevalent, there is major space for improvement.
Aware of the fact that most plastics aren’t recycled at all, many Americans are consequently taking action. A recent survey found that over 60% of respondents keep purchased goods’ plastic packaging and items for reuse. These packaging types and items include boxes, bags, and cutlery. Thus, consumers are acutely aware of global plastic pollution and are acting to keep waste out of landfills.
While consumers’ willingness to quell their own waste generation is commendable, it isn’t sufficient to squelch plastics pollution altogether. Fortunately, many companies using plastic packaging are wising up to consumers’ desire for less waste, as well as the existential environmental threat that their products pose. Some companies are starting to demonstrate a willingness to incorporate post-consumer recycled plastic (PCR) into their own packaging and products, which is key to solving the plastic-waste problem. How are companies doing this?
Importantly, several companies are now setting target dates when PCR will make up the majority of their packaging. Already, many of these large companies are showing progress, and embracing a closed-loop economy. For those who aren’t familiar with the term, “closed-loop or circular economy” refers to a product life cycle that uses old products to produce new ones; there are no new inputs in a closed-loop system. For instance, when a company that produces bottles purchases recycled plastics from a manufacturer or trader, and then incorporates them into making their own bottles, that company is participating in a closed-loop system. It will only use recycled plastics to make bottles, thus keeping feedstock inside its own production cycle and outside of landfills and oceans—circulating material again and again throughout production.
In order to discover more about the degree to which major packagers are taking action to incorporate recyclables into their feedstock, we found the largest packagers by revenue and then took a look at their ESG and sustainability webpages. Ultimately, the extent to how much a company commits itself to using sustainable packaging boils down to a simple question: how much virgin plastic does this company use? When these packagers decide to abandon using virgin-plastic for the majority of their feedstock and replace it with recycled plastic, they demonstrate a commitment to the circular economy.
Nestle
Although headquartered in Switzerland, Nestle, the largest food packager in the world, boasts a massive product portfolio and thus has a significant footprint in the US market. Indeed, Nestle’s revenue of $72.73 billion makes it the largest packaging company by revenue in the US. Nestle’s decision to implement either reusable plastic or recycled plastic into its feedstock has major implications for the both recycling industry and the environment of planet Earth. Nestle has an ambitious plan to reduce its plastic waste output while becoming a significant contributor to the closed-loop system.
Nestle is moving away from using virgin plastics in packaging, according to its FAQ page. By 2025, Nestle aims to use packaging that is either reusable, or made from 100% recycled plastics. These lofty goals are not empty lip service, either: Nestle has begun laying the foundations on which they hope to achieve their goals. For example, Nestle already uses recyclable or reusable plastics in 62% of their plastic packaging.
Recognizing that the pivot from virgin to recycled plastics will require more capital for their procurement departments, Nestle created a fund with over $1.6 billion in capital to pay a premium for recycled plastics. Additionally, Nestle created an in-house research lab, the Nestle Institute of Packaging Science. This research laboratory will focus on the research and development of new packaging materials, including biodegradable plastics and compostable papers.
JBS
Based in Colorado, JBS has a major global footprint, and almost $50 billion in sales revenue. JBS makes popular food brands such as Certified Angus Beef, Country Pride, Moy Park, Cedar River Farms, and the second largest chicken products producer in the world, Pilgrims. In an attempt to contribute to the circular economy, JBS has also rigorously implemented either biodegradable packaging or packaging made from recycled materials. According to its website, JBS used about 98% biodegradable or recycled plastics as feedstock for the approximate 180,000 tons of packaging it creates.
Because much of its business relies on food products wrapped in pre-consumer packaging, JBS operates its own recycling facilities to create in-house packaging. JBS recently increased the annual output of PCR at one of its Brazilian plants to over 3,000 tons.
And, in addition to being more cognizant of using biopolymers or recyclables, JBS is working to reduce its total amount of waste generated per year. The total amount that JBS generated between 2019 and 2020 decreased by 21% when compared to the amount generated from 2018 to 2019. Like Nestle, JBS has also dedicated resources and capital to developing more sustainable packaging.
Unilever
Although sales revenue of about $21 billion makes Unilever considerably smaller than JBS and Nestle, we believe that Unilever’s efforts to both cut down on waste and make packaging made from recycled materials are noteworthy. Unilever owns several brands which include food brands like Ben and Jerry’s ice cream, personal-care brands like Dove, and home-cleaning brands such as Persil dish soap. Unilever fully understands that it needs to embrace a closed-loop system.
Unilever takes a transparent approach when presenting its sustainability goals and waste-production track record to the public. While Unilever used about 700,000 metric tons of plastics to create packaging in 2020, they are striving to make significant cuts to the amounts of virgin plastic that they use. By 2025, they aim to incorporate recycled plastics for at least 25% of all their packaging material--for all Unilever brands. Additionally, Unilever also aims to package all of its goods in plastics that can be recycled, reused, or composed.
Currently, although only 11% of all Unilever’s total material is made from PCR, some of its brands already use 100% PCR material. Unilever states that 100% of two brands’ packaging, Dove and Love Beauty and Earth, are made fully from PCR.
Most notably, however, is Unilever’s worldwide effort to assist in collecting and processing plastic packaging. Unilever has established collection sites in both India and Pakistan, and partnered with the Chinese conglomerate Alibaba to set up AI run drop-off centers throughout China. Teaming up with several other companies, including Proctor and Gamble, Coca-Cola, and Pepsi, Unilever has contributed to the Circulate Capital Fund. This fund makes investments in waste management companies located in various developing countries. Ideally, companies in developing countries will receive money from this fund to further the development of new technologies, or simply start companies that will produce recycled plastics, thus adding more value and raw materials to the circular economy.
Greater Implications
While we looked into only 3 major packaging companies, many other firms are incorporating PCR into their packaging. According to an article written in early 2021, Pepsi and Coca-Cola are both setting goals to have 50% of their PET feedstock come from recycled bottles. Mars, the company that makes chocolates like Twix and M&Ms, has also committed to a very ambitious target goal: by 2025, Mars aims to have 100% of its packaging derived from PCR.
Ultimately, it’s clear that many large, multibillion dollar companies want to kick their virgin plastic reliance. Several of these packagers have already proven their commitment, demonstrating a growing feedstock of PCR. However, major shifts in government policy have affected the applicability of PCR in food packaging.
FDA Clearance
In order to use PCR feedstock to make packaging, the PCR must have a Letter of No Objection (LNO) granted by the Food and Drug Administration (FDA). An LNO deems PCR produced by a particular machine or process safe for application to food and beverage packaging—packaging that will actually touch food or cosmetics consumed by people.
To obtain an LNO, applicants must describe their recycling process in great detail, and produce data from verified, 3rd-party test results proving that their recycled products are as safe as virgin plastics. A more detailed description of an LNO’s requirements and steps can be found here. The FDA has issued LNOs to packagers and machinery makers since the early 1990s, but the number of PCR producing companies has increased over the past few years.
Source: FDA Data, Island Leaf Research
From 2019 to June of 2021, the total number of LNOs granted to recycling-industry companies swelled to 35, which is the highest number of LNOs issued over a 2-year period since the FDA began issuing LNOs back in the early 1990s. This is excellent news for recycling-industry professionals.
Two high-profile LNO issuances went to Austria-based Erema, a market leader in the manufacturing of PCR processing machinery. In late 2019, the FDA granted an LNO to Erema for HDPE production, deeming PCR-HDPE made by its machines safe for food and beverage packing applications. Then, in November of 2020, the FDA approved yet another LNO to Erema for machines that recycle HDPE-made lids and caps. This is a game changer, because packaging companies can now use Erema-made PCR as feedstock for caps and lids to put on disposable beverage bottles and disposable food containers.
Connecting Market Indications
The results of the aforementioned packagers’ decisions to increase the amount of PCR into their production feedstock, coupled with the substantial volume of LNOs granted over the past 2 years, match with the recent upward demand pressure on PET, HDPE, and PP raw-materials. Moreover, consumers’ preferences to purchase goods packaged in material made from PCR rather than virgin plastics adds more demand for recyclables.
In a recent press release, Erema noted that they sold 19 of their LNO-certified HDPE processing machines in the past 18 months. This recent announcement illustrates the willingness of processors to pay several million dollars for high-tech machinery that produces a high-quality, high-demand commodity.
Island Leaf sees three positive points from the developments noted in the piece:
1. The addition of more plastic waste into a closed-loop system is very good news for the earth, although improvement needs to continue, as there is a very long way to go.
2. Companies are seriously demonstrating a willingness to own up to negative consequences associated with products made from virgin plastics.
3. Finally, the shift toward PCR presents lucrative opportunities for traders and manufacturers in the recycled plastics industry. Companies can potentially transform these opportunities into higher revenues and job creation.
Of course, procuring feedstock for the production of PCR is not simple—it takes time, vetting, and proper-relationship building. Island Leaf Commodities has spent years honing relationship skills, and thus has access to many types of raw-materials used to make PCR. Send us a message from our contact page; we are always looking to build new relationships and increase our network’s span.
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