Recycled HDPE prices are up — way up — and the recent surge in corporate sustainability commitments plays a big role in the equation, experts say.
The trend started even before the pandemic, but the staggering price climb grew even steeper over the past 18 months. In August, curbside stream HDPE color was trading at 58 cents per pound, up from 56.78 cents last month and 4.44 cents at this time last year, according to Resource Recycling.
HDPE natural reached a new high of $1.08 per pound this month, up from $1.06 last month. That’s a huge jump from the 48 cents per pound one year ago. The trend for this category has caught the attention of large residential recyclers, with one recently calling it "unheard of" for HDPE natural to be more valuable than aluminum.
The price escalation is tied to booming recycled HDPE demand, especially for HDPE natural, which “always is in great demand,” said Steve Alexander, president and CEO of the Association of Plastic Recyclers. “Everyone loves to have natural material because … it’s a blank slate in terms of applications.”
Brand demand boom
While many factors contribute to high demand, experts say one stands out as a key driver: “Brands are very much scrambling to find supply and use PCR [post-consumer resin] in their packaging portfolios,” said Kim Holmes, principal consultant at 4R Sustainability. "I believe the increase in pricing is directly correlated to new demand coming online.”
Whether via wide-reaching measures such as the Ellen MacArthur Foundation-led Global Commitment — which has more than 500 governmental and corporate signatories striving toward a circular economy for plastics — or individual corporate commitments, numerous companies have been pledging to use more recycled content.
“In the last three to four years, brand commitments have increased dramatically,” Alexander said. “They're all looking for a supply of recycled material. I see that trend continuing.”
Although experts predict continued high demand for the foreseeable future, the breakneck rate of increase is slackening, at least for the time being.
“We have seen some demand pullback the last 60 days, as people have started to stop isolating at home and get back to a more normal way of life,” said Scott Saunders, general manager of the KW Plastics recycling division. “It’s at a more normal pre-COVID level now. That could help ease some of the pricing run-up that we’ve seen in the last year.” He notes that more people working from home led to more HDPE containers for items like milk and cleaning products ending up in the residential stream.
Holmes believes that consumer product company demand and other marketplace factors have caused the pricing dynamics for HDPE and other recycled resins to change permanently.
“In the past, the cost of recycled material generally tracked that of virgin: When virgin was up, recycled plastic was up. When virgin was down, recycled was down,” she said. “With all of these different demand drivers emerging for recycled content, I think we've finally seen a complete decoupling of virgin and recycled pricing.”
Pricing used to be brands' main consideration when contemplating the use of PCR, said Holmes, but now they make that decision based on pressure from nongovernmental organizations and the public. Corporations also face pressure from investors and shareholders.
"I think pricing was a much more influential driver even just three years ago. ... Now brands don't have a choice: They can no longer be price-driven, and they have to abide by these commitments," she said. "There's a level of transparency in using these goals that will push brands to choose recycled regardless of pricing."
HDPE demand is outpacing supply in a market that already was tight. Experts point to collection limitations as a leading cause for the supply stagnation. The latest U.S. EPA data shows waste generation and recycling volumes for HDPE natural bottles in particular have stayed relatively steady for multiple years, declining slightly to an estimated 220,000 tons recycled in 2018.
"We know how to process the material, recyclers have the capacity to process it — and there's more [processing capacity] coming online — and we have strong end markets," Alexander said. "The only barrier to an increase in supply is collection infrastructure. We know the raw material exists out there."
More people need access to recycling programs, he said, and greater participation is needed from those who already have access. Lagging sorting and processing equipment upgrades were also a factor until recently, but that has shifted, and capacity is noticeably greater now than five years ago.
"The past three to four years, we've seen significant investments in recycling capability and capacity domestically," Holmes said. "When you look at all the investments coming across the plastic supply chain in new domestic capacity, we'll have to dramatically increase volumes to meet that demand."
Installing processing equipment typically takes the better part of a year. The slow upgrade process grew even slower during the pandemic because of supply-chain snags.
At KW Plastics, "We've been investing in expanding our capacity by about 40% over the last 18 months," Saunders said. "Although it slowed down a little because of supply-chain issues for electrical components."
Saunders also says HDPE natural supply is limited by the small number of global regions that use and generate the material for milk jugs, which is the category's leading form of recoverable natural material. The U.S. and UK are the main HDPE natural milk jug producers, whereas most other regions sell milk in containers made of other materials, such as glass bottles, cardboard cartons or plastic pouches.
Further, because city or regional governments typically set the terms for collection programs, the programs and collection process are rather inelastic. Recyclers sometimes face challenges with matching those dynamics to the rapidly changing commodity marketplace and supply issues.
"The issue we all struggle with is that there is a disconnect between higher prices and bringing more material to marketplaces," Saunders said. "When prices go up, it doesn't bring in more material. When prices go down, it doesn't slow the material flow."
Transportation is another challenge exacerbating the short HDPE supply. Truck driver shortages and high trucking demand already were causing transportation prices to tick up prior to the pandemic, which has worsened trucking issues for goods and materials across the board, and rail transportation has been slower. In addition to interfering with on-time material delivery, the challenges have further increased costs for recyclable materials and other goods in many cases.
“Transportation costs eat away all the profit. Transportation is definitely one of the key factors right now in people sorting out the economics of recycling,” Holmes said.
While material processing capacity continues to expand, other supply barriers need more attention, Alexander said.
"Dealing with the collection and recycling of material is complicated, and it really needs thoughtful, rational approaches," he said. "It's not something you'll solve just by saying you want 80% recycled content by a certain date. We need to look in depth here in intelligent ways to deal with these issues."
In the meantime, processors like KW Plastics are being vocal about the general HDPE supply shortage to encourage more collection while they wait to see if pricing evens out.
"I think the best thing to spur recycling is for prices to remain healthy — not necessarily as high as they are today, but that they allow us to pay a good price for bales and buy equipment," Saunders said. "As a company, we would like to see the market pull back a little bit and be closer in line with virgin HDPE prices so there’s not a penalty for a consumer to use recycled resin. But we’ll just have to wait and see how everything plays itself out."