Thoughts on PCR Supply and Demand

We need to be specific when discussing post-consumer resin (PCR) supply and demand. We often lump all types of “PCR” into one category, which is inaccurate and greatly confuses the issue. Each grade has its own market dynamics. There are, essentially, five primary PCR polymer categories that are recovered.

1. PET (polyethylene terephthalate) – Clear and translucent green
2. HDPE (high-density polyethylene) Natural
3. HDPE Color – fractional melt(bottles) and injection grade (bulky)
4. Polypropylene
5. Film – HDPE, LDPE (low-density polyethylene) and LLDPE (linear low-density polyethylene)

Of these five categories, only PET and HDPE Natural have even begun to decouple from the price of virgin (unrecycled) materials. This is because they are the only two coming from a mono-color, predictable and Food and Drug Administration (FDA) source. This means that they can be turned back into an FDA and colorable pellet, which is what the brands want.

When we discuss market dynamics, we need to be specific about the category. The supply and demand balance of PET may be totally different than HDPE Color. And, as we have seen this year, HDPE Color will be completely different from HDPE Natural, etc.

We often hear that the U.S. recycling system cannot deliver the supply of recycled materials demanded by the industry’s commitments.

We must get away from this narrative that gives the brands an excuse not to act. The commitments require a spec that does not currently exist. Much of the demand is simply theoretical, not real.

Brands often want PCR to be perfect. They want to go from ‘customer-facing product A’ back to ‘customer-facing product A.’ We are in love with the PET bottle-to-bottle model. The problem is that there is a quality issue when it comes to HDPE Color, PP, and Film. It is not FDA, and it is not colorable. While emerging technology may eventually change this, the hard truth is that these categories will not be FDA or colorable in any meaningful volume anytime soon.

Brands should embrace products that have a realistic spec and can be used, for example, in their supply chain – products such as pallets, bins, and crates. These products do not compete with virgin plastics (read; perfect). Instead, these durable, ubiquitous, and circular products use plastic to replace materials such as wood, steel and concrete. A realistic spec with voracious demand is foundational to the health and future of recycling.

Instead of debating the amount of material available to meet commitments, we should work hard to use what’s currently available. The fact that virgin materials can substitute for PCR is an advantage to this effort because if there’s not enough PCR then virgin materials can step in. That would be a good problem. We must use all of what is available and then go from there.

Current market dynamics do not support the notion of greater demand than supply.

Economics 101: the price of a product is determined by the interaction of supply and demand. When demand outstrips supply, the cost of supply increases. We are not seeing that. In fact, we are seeing the opposite – incredibly low prices for all recycled plastic categories except HDPE Natural.

If real demand actually outpaced the real supply, we should be seeing the following:

• High prices for all categories of PCR – not happening
• Buyers pushing for long-term contracts to lock up supply across the value chain – not happening except in PET Clear
• Huge investment in increasing recovery capacity and quality, including mergers and acquisitions (M&A) activity – not happening except in PET Clear

As an industry that has seen prices collapse in the last 60 days, it’s critically important that we have a common understanding of the problem. We don’t have the time to debate what to debate. We need realistic demand now. Realistic demand creates value. Value drives recovery. We will know we are being successful when the true value of PCR is reflected in the market dynamics of price, contracts, and investment for all categories.