|Market Assessment: Virgin and Recycled Resin Prices Caught in Downward Spiral|
October and November 2008 may go down as plastics recycling's most turbulent market period in history.
Recovered resin prices have been plummeting for about four weeks. In a normal market, prices would have fallen naturally during this period because of two factors: The price of oil dropping precipitously and a slowing economy.
Oil prices have dropped more than 50 percent from summer's high and the cost of raw materials to make virgin resins have accordingly dropped sharply, thus pulling down the value of post-consumer recycled plastic. For example, monomer prices fell an astounding 20 percent in one week in mid-October.
Plastics sales have been on the decline for nearly two years and the current economic slowdown is certainly one reason for that. Additionally, for such resins as PET, the ongoing light weighting of products has resulted in lower sales.
Thus, a moderate dip in resin pricing was expected in October and November. But, what has happened is not a moderate price swoon; rather, the global credit crunch and the ensuing economic turmoil have led to a quick and negative reaction. Consumer confidence has dropped to its lowest level ever, while the unemployment rate is at its highest number in five years. Small investors have lost trillions in their retirement stock accounts, and the value of the typical American house has dropped by more than one-fifth.
In addition, it seems as if no one can get credit to make investments — homeowners, businesses or governments. As a result, many companies have hunkered down, slashing orders and cutting production. Because of this, plastic resin sales, both virgin and recycled, have slowed sharply. Using one example, housing starts have fallen to the lowest level in 17 years, which affects the PVC pipe, tubing, deck, fence, window and door markets.
Recycling processors say that if they can sell baled plastics, it is often at fire-sale prices. Other processors say that plastics buyers, both foreign and domestic, are not making any offers at all. Recovered plastics soon will be headed to landfill.
This is a global phenomenon. The Chinese plastics industry is said to be at a standstill, as its members are sitting on large inventories of bales and finished goods. Some cash-strapped firms are taking desperate actions. One Chinese consumer of PET bottles, for example, is said to be selling finished polyester fiber at the cost of raw materials, just to generate cash flow.
Longtime industry players say they have not seen anything like this in more than a dozen years. All, especially, note the steepness in the price drop. Scrap PET bottles, which might have sold for 20 cents per pound at the beginning of October (truckload picked up in the eastern U.S.), now are moving, when an order can be found, for about five cents per pound. The value of baled homopolymer HDPE bottles dropped 50 percent in just a month.
Several buyers at major plastics reclamation plants say that local processors — which traditionally played the spot market to maximize revenues in the high market — are the firms getting killed in the down market. "I am only buying from my faithful suppliers," said one large PET reclaimer. It appears to be payback time.
Certainly not everything is doom and gloom. Because consumers need to wash their dishes and clothes in both a good economy and a bad one, reclaimers of copoly HDPE scrap are still receiving orders from bottle makers for clean flake or pellets. The PET bottle resin industry, as another example, expects two-percent growth this year, with more and more bottles being made from food-grade PCR. But, even that is not great news, as PET bottle resin usage rose five percent the previous year.