INSIGHT: High quality waste bale shortages could place mechanical and chemical recyclers in direct competition for mixed-waste bales

LONDON (ICIS)–Big shortages across all major mono waste bale streams have led prices to multi-year highs.

Polyethylene terephthalate (PET) waste bales are trading at their highest levels since April 2012. Polypropylene (PP) and low density polyethylene (LDPE) bales are trading at record high levels, and high density polyethylene (HDPE) bales are trading at €50/tonne below their record highs of May-July 2021.

Multiple players across these markets expect current shortages to last throughout 2021, and potentially across 2022.

Given the current lack of bale capacity, multiple players are expecting investment in selection systems for mixed-plastic bales, and an increase in usage of mixed-plastic feedstocks.

This will potentially put them in direct competition with chemical recyclers.

Chemical recycling is an umbrella term for a series of processes that employ different production routes, inputs and outputs. However, the most common chemical recycling process in Europe at present is pyrolysis, which uses heat and pressure in the absence of oxygen to effect entropy.

The pyrolysis process requires limiting polyvinyl chloride (PVC) content (to avoid creating hydrochloric acid in the reaction and causing corrosion), moisture and the presence of metals. Firms using the pyrolysis process also aim to avoid high contents of PET, which requires transesterification to depolymerise – which does not occur using pyrolysis.

Although often talked about as a homogenous collection of material, mixed plastic waste covers multiple different grades, including partially sorted and unsorted material.

The majority of unsorted material is used in refuse derived fuels where its high calorific content means that it produces a large amount of energy when incinerated.

Typically, waste managers pay for this material to be taken away, with cost-savings against incineration or landfill gate fees dictating the price.

Partially sorted bales typically comprise fractions of polyolefins, polystyrene (PS) and PET. The most commonly currently traded in Europe are either 90% polyolefin bales or 98% polyolefin bales. 90% polyolefin bales typically contain around 60% HDPE and are more common in northwest Europe. 98% polyolefin bales are more common in southern Europe, with the polyolefin content more mixed. Mixed polyolefin bales are also commonly produced from the removal of caps and closures in the recycled PET (R-PET) production chain.

As a result, the current preference of the bulk of these chemical recyclers is for 90% mixed polyolefin bales because this limits PVC, PET and metal content, gives them the maximum amount of usable material and lowers internal sorting costs, which are typically expensive.

It is also the 90% polyolefin bales that many mechanical recyclers faced with current bale shortages are exploring to see whether they might serve as a substitute feedstock, given the current shortages.

While historically these mixed bales have gone into low-quality applications, mechanical recyclers are increasingly exploring what valuable fractions they might extract, and how they might separate and sort these materials at reprocessing facilities to ensure ongoing access to supply.

Many of the chemical recycling firms using 90% polyolefins waste bales have been purposefully designed not to compete with the mechanical recycling chain on sustainability grounds.

There is an absence of independent, widespread and comparable life cycle analyses (LCAs) that demonstrate the complete environmental impact of chemical recycling, compared with mechanical recycling, virgin production and alternatives across different usages.

Nevertheless, most studies currently show mechanical recycling to have a lower environmental impact than chemical recycling. This is the reason many industry players advocate for chemical recycling to act as a complement to mechanical recycling, focusing on the volumes that cannot be mechanically recycled, or are only able to be recycled in to low-value applications.

A shift in the competitive landscape could force chemical recyclers not wanting to compete with mechanical recyclers to use waste bales that need an increased amount of sorting and produce lower yields.

Coupled with this, the conversion cost for a mechanical recycler is typically substantially less than for chemical recycling, which typically requires high amounts of energy. This means that mechanical recycling can typically pay a higher price for waste bales at a lower sales price for reprocessed material, while remaining profitable, than chemical recyclers.

Many long-term profit-models for chemical recycling are predicated on the assumption that mixed waste bale prices will remain low, as they historically have.

This is reversal to the trend that has been occurring in the past couple of years, where those chemical recyclers without ideological imperative to not compete with the mechanical recycling chain have often sourced sorted monomaterial bales, and in some cases even reprocessed flake material.

There have been periods where this has tightened the market due to the sheer volume of chemical recycling pilot plants coming on stream in the past two years.

While chemical recyclers may be willing to condone high costs during testing stages, it is unlikely that this will remain the case as the market scales.

With the demand for recycled material continuing to rise, and structural shortages ongoing, mixed-plastic waste bales may become the next battleground for material in the industry.

ICIS is currently prototyping a mixed-plastic waste bale report, covering multiple grades of mixed-plastic waste, along with wider supply and demand trends in the chemical and mechanical recycling markets. To find out more about the new report, or to receive a copy of the prototype, please contact Mark Victory at mark.victory@icis.com