Plastics recycling has become an altruistic endeavor as profitability declines.
The low costs of energy commodities like oil and natural gas have reduced the profitability of the plastics recycling market. Now governmental mandates and social responsibility are the only drivers for companies to use recycled plastic. This will have profound affects on the recycling equipment market and specifically pelletizing equipment.
The prices of virgin plastic are so close to the price of recycled plastics that the price difference is negligible to the processor. Virgin material comes with knowing exactly what you are getting and provides the most consistent flow of material, usually producing fewer rejected products. Recycled plastic provides a product that is not always 100% what is promised and usually needs additional equipment to protect the equipment and product from impurities. Unless there is another driving factor, when the prices of virgin and recycled material are the same, processors prefer virgin material.
The plastics recycling industry and equipment follow an “all or nothing” cycle. When virgin is expensive, recycling equipment is hot; when virgin resin is cheap, then recycling equipment loses value. We are currently in a cool period. During this cool periods, many recyclers go out of business and startup halt until profitability returns. This cycle makes investment in recycling facilities a risky business.
Governmental entities are pushing for manufactures to avoid single-use plastics and to use more recycled content in their products. Socially responsible companies continue to use of recycled content in spite of the costs.
Since China mandated that it would not accept imports of plastics, it has created a large surplus of plastics that needs to be processed. Post-consumer recycled plastic is the most costly to process. We continue to feed this surplus without a clear way of making recycling profitable. Large soft drink companies have promised to use more recycled content in their bottles, but so far have not made this a reality on a grand scale.
The plastics recycling machinery and equipment market will remain tenuous as the low cost of virgin resin and the surplus of material to be recycled combine with the lasting effects of Covid-19. Plastics machinery in general is expected to decline 10% in 2020 and only rebound about 5% in 2021. The market for recycling equipment will remain depressed until the price of virgin resin rises, the government makes sweeping mandates or a majority of companies insist on recycled plastics in their products.