Recycled plastic at virgin prices? Asian ...

13 May.,2024

 

Recycled plastic at virgin prices? Asian ...

Sustainability target deadlines for big consumer brands to use more recycled plastic in their products and packaging are looming, but high volatility in prices and stock of the material is turning them off recycled content, casting a cloud over the already-spluttering circular economy. 

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Asian recyclers that Eco-Business spoke to say that they are struggling to deliver recycled polymers at the volume, quality and prices that their customers – mainly multinational consumer goods brands – are demanding.

The market for recycled polymers has yo-yoed in the years since the Covid-19 pandemic, but this year, recyclers are reporting that low oil prices fuelled by the Ukraine-Russia conflict, exorbitant shipping costs resulting from disruption in the Red Sea and ongoing economic uncertainty is squeezing them further.

The market for recycled Polyethylene terephthalate (R-PET) – the most commonly used plastic by consumer brands and most reliable market indicator – has “lacked consistency” since 2020, with disruptions causing forecasts to be “tossed out the window,” said Alvaro Aguilar, head of logistics at Prevented Ocean Plastic, a Bali-based recycler.

The European Union’s Single Use Plastic Directive, which mandates all PET beverage bottles sold in the EU to contain 25 per cent recycled content by 2025, promised to drive global demand for recycled content, but a lack of regulatory clarity and weak purchasing from brands has clouded the outlook, Aguilar said.

“With little clarity, it’s hard to plan stock [of recycled plastic]. No one wants to take the risk,” he said.

Brands are asking for recycled plastic at virgin prices, which is not feasible.

Tom Jackson, co-founder, Honest Ocean

Meanwhile, R-PET supply has been squeezed due to demand from competing industries, with fashion, automotive, electronics and toy companies jostling with consumer goods firms for recycled resin. 

Doug Woodring, managing director of Ocean Recovery Alliance, a Hong Kong-based waste non-profit, estimates that there is a 6 million-tonne shortfall in recycled plastic. “Brands want it, but they can’t get their hands on it,” he said. 

Rob Kaplan, chief executive of Circulate Capital, a circular economy investment firm that operates in South and Southeast Asia, said he expects the market to recover by the second quarter of this year, as more brands place orders for recycled plastic.

Brands balk at prices

In the years since the Covid-19 pandemic, the low price of oil has subdued the price of oil-derived virgin plastic, and recycled plastic is now significantly pricier than virgin, slowing the circular economy for plastics.

Prices of virgin HDPE and LDPE, plastics used to make bottles and other containers, have fallen by 10 per cent and 14 per cent, respectively, from the second to third quarter of – and have plummeted by 125 per cent and 131 per cent, respectively, compared to Q4 2020.

R-PET currently costs around US$1000 per tonne, while virgin plastic is around US$800-US$900 per tonne. 

Consumer brands have slowed their spending on recycled plastic as a result, despite high-profile sustainability commitments to use more recycled content in their products and packaging.

Major consumer goods companies and retailers signed a pledge in 2018 to increase the proportion of recycled plastic they use to 26 per cent, and cut the amount of virgin plastic they use by 18 per cent by 2025.

Targets vary by company, but few look likely to meet any of their commitments, despite pressure from environmental groups and consumers for bolder action to tackle plastic pollution.

Coca-Cola, which produces 200,000 plastic bottles every minute and ranks as the world’s biggest plastic polluter in waste audits, has pledged to use 50 per cent recycled content in its bottles by 2030. The company has griped about high recycled plastic prices and poor systems for collecting recyclables in Asia that make meeting targets difficult.

PepsiCo has committed to boost its recycled plastic content ratio to 25 per cent by 2025 and reduce virgin resin use by 20 per cent by 2030. But while the company has marginally increased its recycled content ratio, its use of virgin has increased by more. PepsiCo’s CEO blamed this on the “limited availability and high cost of recycled content”.

“Brands are asking for recycled plastic at virgin prices, which is just not feasible,” said Tom Jackson, co-founder of Honest Ocean, a company that recycles plastic trash recovered from Indonesia’s coastline.

Recycling plastic involves various stages of production – from collection and sorting to melting and moulding – and each player in the value chain “must make money,” Jackson said.

But buyers object to paying more for recycled plastic, which is usually dirty and smelly when collected, and hard to process at the right quality. Shipments of recycled plastic have been rejected over quality concerns, sources familiar with the market say.

Eco-Business has approached PepsiCo and Coca-Cola for comment. 

Aguilar argues that quality is not the issue, and brands have prioritised cost over value. Smaller buyers, such as British cosmetics firm LUSH and German supermarket chain Aldi, have shown more willingness to fulfill their sustainability goals, he said.

If big brands are serious about hitting their 2025 targets, they will need to place substantial orders of recycled plastic by the second quarter this year, so that their products are on shelves in time, Aguilar noted.

Some brands have started to experiment with long-term contracts with recyclers to get around the price volatility problem, Kaplan observed. “Long-term, floating prices with floors and ceilings ensure that no one gets left out in the cold,” he said.

Currently, the relationship between brands and recyclers is “not about risk sharing but risk transfer,” he noted.

The industry is focused on cost not on value. Sustainability has been deprioritised.

Alvaro Aguilar, head of business development and logistics, Prevented Ocean Plastic

Controversy may also have turned brands off recycled plastic. A legal battle between Ocean Integrity and ReSea over waste that was allegedly dumped instead of recycled in Indonesia highlighted what market observers have dubbed the “wild west” of waste management.

Who’s paying the price of a volatile recycling market?

Recycling firms in Asia have been struggling to stay afloat amid uncertain market conditions and soaring shipping costs.

“Some of our competitors have gone under, or are close to going under,” said Jackson of Honest Ocean, whose business has pivoted to chemical recycling where he believes there is more growth potential. 

Smaller recyclers have found the market conditions tough as cash flow has dried up, noted Dian Kurniawati, founder and director of Tridi Oasis, a R-PET bottles manufacturer in Indonesia.

The most vulnerable, however, are on the front line of the plastic crisis – the waste collectors who process up to 90 per cent of Southeast Asia’s plastic waste, said Aguilar.

Factories in Indonesia have been unable to shift stock of recycled plastic, so have stopped buying material from collectors.

“When the market is good, collectors don’t benefit much though they have enough to buy food. When the market is bad, they suffer more than anyone,” he said.

Some recyclers have relied on philanthropic funding to keep going, although plastic recycling has not been attracting much support from donors, Woodring noted.

“There’s a giant funding gap. But donors won’t give money [to tackle plastic pollution] and banks won’t fund it as it’s too small an investment,” he said. 

Regulation gaps

Polluter pays laws, such as the EU’s Single Use Plastic Directive, are needed to push companies to use more recycled plastic or try less environmentally damaging plastic alternatives, say industry observers. 

Even Coca-Cola and Unilever, two of the world’s largest users of plastic packaging, have publicly backed Extended Producer Responsibility (EPR) laws, although Coke has also lobbied against recycling schemes in the past.

In Southeast Asia, a global hotspot for marine litter, only the Philippines and Vietnam have enacted EPR regulations, although questions have been raised over compliance and implementation.

Singapore is expected to roll out an EPR scheme next year, two decades after a such a scheme was proposed, and Indonesia has a voluntary EPR scheme in place.

“There have been many discussions about how to implement EPR [in Indonesia]. However, real regulations and enforcement are not there yet,” said Kurniawati. 

Woodring said that governments will have to enact laws like the EU’s, which mandates recycled plastic use, eventually, to respond to growing pressure to act on plastic pollution. The coming United Nations treaty on plastic pollution – the fourth round of negotiations are slated for April – is expected to nudge policymakers into action.

In the meantime, the market needs “leaders” to take the hit and pay a premium for recycled plastic, he said.

“Companies need to do voluntary EPR, until it is not voluntary. The money will feed into supply chains to achieve economies of scale, then prices will come down.”

“At the moment, it’s a chicken and egg situation,” he said.

False solution?

Meanwhile, green groups have been calling out recycling as a false remedy, as only 9 per cent of plastic is recycled and 14 million tonnes of the material continues to enter the ocean annually.

Greenpeace is calling on governments to reduce plastic production by 75 per cent by 2040. Plastic production is projected to triple by 2050 and consume 13 per cent of the world’s carbon budget for keeping planetary heating below 1.5°C.

A report by Oceana has projected that even if PepsiCo and Coca-Cola met their recycled content targets, aquatic pollution from single-use bottles would fall by only 7 per cent.

The non-profit said the R-PET market is not reducing marine pollution and has called for an industry-wide pivot to refill solutions to wean companies off plastic packaging.

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How Hong Kong can rescue the struggling recycling ...

He was referring to the establishment of an unprecedented circular supply chain where all of Hong Kong’s discarded polyethylene terephthalate (PET) bottles, used for packaging locally made drinks, are collected and processed into recycled PET (rPET) pellets for producing new containers.

At the December 2022 opening ceremony of the state-of-the art, 6,500-square-metre plant that cost US$11.6 million to build, Patrick Healy, chairman of Swire Coca-Cola said setting up NLP was a “huge step” towards the Hong Kong-based drink maker’s ambition of “closing the loop”.

Are you interested in learning more about PET plastic recycling HongKong? Contact us today to secure an expert consultation!

At EcoPark, Hong Kong’s first recycling business park in New Territories, New Life Plastics (NLP) has been running the city’s largest food-grade plastics recycling facility aspiring to process a quarter of the city’s 4.7 million plastic drink containers landfilled daily.

NLP is 57 per cent-owned by Swire Coca-Cola, 10 per cent by German waste management recycling firm Alba Group, and 33 per cent by Hong Kong’s Baguio Waste Management and Recycling.

But two years after operations began, NLP’s plant is running at only around 30 per cent of its PET bottles processing capacity, said Suzanne Cheung Kit-yi, head of public affairs, communications and sustainability at Swire Coca-Cola HK.

She attributed the low utilisation to insufficient policy support and incentives, inadequate collection infrastructure and consumers’ lack of trust that bottles placed in recycling bins will indeed be recycled or just end up as pollutants in landfills.

“Convenience of recycling and trust hold the key, both of which are lacking in Hong Kong,” she told the Post. “The government can play a strong role in improving convenience, incentivising recycling-friendly packaging design, and enhancing trust through education and recycling check-and-trace mechanisms.”

Interview with Suzanne Cheung Kit-yi, Head of Public Affairs, Communications and Sustainability, Swire Coca-Cola HK, about plastic reduction and recycling initiatives at Swire Coca-Cola HK’s office in Siu Lek Yuen, Sha Tin. Photo: Jelly Tse

PET is the world’s most recycled plastic with current rates of 31 per cent in the United States and 52 per cent in Europe, according to industry associations representing North American and European producers of PET. In contrast, only around 12.3 per cent of Hong Kong’s nearly one million tonnes of all kinds of plastic waste was sent for recycling in 2022, according to Environmental Protection Department statistics.

And now there is urgency to act as the walls are closing remorselessly. Some 75,190 tonnes of plastic bottles - equivalent to the take-off weight of 330 Boeing 787 Dreamliner planes - were estimated to have ended up at landfills in 2022. This follows the ban by mainland China, previously a key destination for Hong Kong’s recyclable plastic wastes, on imports of unprocessed solid waste in recent years.

The failure to recycle has environmental implications. A 500-millilitre PET bottle weighing 10 grammes has a greenhouse gas footprint equivalent to 82.8 grammes of carbon dioxide, according to Beverage Industry Environmental Roundtable, a coalition of leading drinks companies.

PET plastic bottles carry other environmental and health risks, since it takes up to 500 years to degrade and can be a source of plastic pollution and microplastics in drinking water and the environment, the US National Institute of Health said.

Bottled water makers Swire Coca-Cola and Watsons Water have, in recent years, taken pre-emptive action, voluntarily adopting the use of the more expensive rPET material for packaging, and operating “reverse vending machines”, to encourage the collection and recycling of bottles by offering rewards in exchange.

Still, since rPET is primarily sourced from overseas, there is some way to go before reaching the goal of “closing the loop” completely, minimising the distance travelled by plastic bottles and shrinking their carbon footprint.

“It is our aspiration to make the local circular economy real in Hong Kong,” Cheung said. “That is why we work with NLP to see if we can use locally-collected bottles to re-make bottles locally.”

Circular economy is a model of manufacturing and consumption, where reusing, repurposing and recycling of existing materials and products can prolong their useful life, hence minimising materials and energy usage, besides cutting waste generation and greenhouse gas emissions.

Circular economy initiatives are expected to contribute to some 30 per cent of the reduction in mainland China’s carbon emissions by next year, a proportion seen rising to over 35 per cent by 2030, policy planner National Development and Reform Commission said on Monday.

A worker transfer recycling plastic bottles to a bale breaker at New Life Plastics’ Advanced PET and HDPE Recycling Facility in operation at EcoPark at Tuen Mun. The plant handles PET (polyethylene terephthalate) and HDPE (high density polythene) containers and reprocesses them for use in other products. Photo: K. Y. Cheng

Currently, plastic recycling in Hong Kong is not profitable due to high operating costs, said Patrick Chan Pak-hang, chief financial officer at the Hong Kong-listed firm Baguio Green Group, which is primarily in the business of cleaning, waste collection and recycling.

“Bottle collection, sorting and cleaning is expensive, as it requires land resources, transport fleets, electricity and labour,” he said. “Sorting is especially cumbersome and important, because if different materials are mixed together, it would severely undermine the quality and selling price of the recycled product.

“That is why we need to introduce a levy on waste collection and other incentive schemes to motivate consumers to contribute more towards recycling.”

Due to limited land, Hong Kong needs to collaborate with southern Guangdong cities, according to Chan, adding that government level discussions are needed to tackle the problems posed by the ban on imports of unprocessed plastic wastes into mainland China.

The Hong Kong government should also support local recyclers by offering them longer leases for the approved land plots, he said.

The government is expected to carry out the much-delayed implementation of levy on municipal solid wastes beginning in August, and compel waste generators to buy designated bags for disposal. Together with penalties for non-compliance, it aims to incentivise waste reduction, and promote repurposing and recycling.

The government aims to enact a bill later this year, on a “common legislative framework” for implementing producer responsibility schemes (PRS) for plastic drink containers, drink cartons, electric vehicle batteries, vehicle tyres and lead acid batteries from next year, an Environmental Protection Department spokeswoman said.

PRS aims to have manufacturers, distributors and consumers share the responsibility and costs for collection, processing, recycling and disposal. A scheme for the environmentally safe disposal of electrical and electronic equipment was launched in 2018.

“After the passage of the bill, we will introduce the subsidiary legislation on the PRS on plastic drink containers and drink cartons to the Legislative Council,” she told the Post.

To increase the recycling rate, the government has rolled out pilot schemes that have so far installed 120 plastic bottles reverse vending machines that offer consumers 10 HK cents of rebate for each used bottle that is returned.

The department has also implemented a central collection service for waste plastics in nine districts, and established over 180 public collection points that accept nine types of recyclables, including plastic drink containers. Participants in an incentive scheme can earn credits for redeeming gifts and daily necessities.

Meanwhile, Swire Coca Cola has made advances in other recycling-friendly packaging initiatives.

In April 2022, it became the city’s first company to launch a label-free bottled water product for the mass market. The sales bar code is featured on the bottle cap, instead of on a plastic film attached to the bottle as per convention, to facilitate the sale of individual units.

“It actually costs us more money and time to make the bottles because we have to buy machines to laser-incise information on the bottle letter by letter instead of sticking a label on quickly,” Cheung said, adding that the initiative was supported by consumers.

“We have conducted focus groups to gauge consumer responses to our packaging and labelling changes for reducing contaminants for recycling, which was quite supportive,” she said. “We were quite nervous initially because of the visibility impact on the brand, hence we had a marketing campaign to support it … but we are not alone as this is a global trend.”

Other governments in the region have already passed legislation that encourages eco-friendly packaging and some have reported early wins. In 2019, South Korea’s government banned the use of polyvinyl chloride (PVC) and coloured PET in food-grade plastic bottles, both difficult-to-recycle materials. It was followed by a government requirement to grade and label the recyclability of the bottles.

“Recyclers do not like PVC because it is toxic and it has the same melting point as PET, which will adulterate the quality of the plastic and reduce its usability and value,” Cheung explained.

These moves have produced dramatic results. South Korea raised its plastic waste recycling rate to 57 per cent in 2021 from 34 per cent in 2018. It aims to further increase the rate to 70 per cent by 2030.

Taiwan’s government unveiled a plan last November, to offer rebates of up to 85 per cent on the waste disposal levy applied to plastic containers if certain standards are met. These concessions will be made available from the second half of this year and companies’ packaging materials must achieve specific green design criteria. These include usage of single material, physical transparency, label-free conditions and the packaging must contain at least 25 per cent recycled material.

Hong Kong can also look to mainland China’s recycling success stories for inspiration, where a public-private collaboration project in Suzhou in eastern China pioneered this model. Singapore-based

Alliance to End Plastic Waste

(AEPW), a non-profit organisation, joined German development agency Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) on a project to stanch plastic waste leakage into the Yangtze River. Named JingSu, it alludes to the idea of cleaning up plastics in Suzhou, with a wordplay in Chinese pinyin where “Su” can mean “plastic” or refer to the city of Suzhou.

Funded by the AEPW and implemented by GIZ, the JingSu project sought to strengthen Suzhou’s plastic waste collection infrastructure and raise the recycling rate of difficult-to-recover, single-use plastic food and drink containers, through incentives.

AEPW, backed by plastic makers and recycling solution providers, has dedicated 76 per cent of its cumulative revenue of US$297 million, raised from its 74 members, towards projects in multiple countries.

GIZ and AEPW selected Suzhou to be the pilot implementation city as part of Beijing’s Zero Waste City strategy which promotes circular economy practices nationwide.

Between September 2021 and December 2023, the JingSu project established 500 collection points, where citizens can directly sell their plastic containers to state-owned collection and segregation firm Cheng Tou Zai Sheng, which then resells materials to recyclers for further processing. Some 6,800 tonnes of plastic materials were collected in the period.

Before the establishment of the JingSu Project, there was no recycling system for food and drink containers – considered low-value plastic waste – in Suzhou, said Qian Mingyu, JingSu’s project manager and team lead of environment and circular economy at GIZ.

Nick Kolesch, vice-president at the Alliance, said many of its member companies are making design changes to enhance recyclability of plastic packaging.

“One of the key technical areas of the industry has been the minimisation of material use for the same purpose, and that comes through light-weighting and thin-walling of different materials and packaging,” he said.

Technology also plays a role in making recycling a commercially-viable business, according to Shanghai-based recyclable materials collection firm, LoveRe. It has installed some 21,000 “smart” collection machines in over 30 mainland cities since 2019.

“We use artificial intelligence-enabled packaging recognition and optoelectronic equipment to sort PET drink containers with an accuracy as high as 98 per cent, and we reward consumers via a mobile app for accurate classification and deposit of materials in our machines,” said Jiang Wenhua, LoveRe’s vice-president.

Data collected since 2019 in Shanghai and Qingdao showed that its recyclable material collection systems have helped the respective local governments to reduce landfilled municipal wastes by around 30 per cent, he added.

In the case of Hong Kong, Swire Coca-Cola’s Cheung said with policy support, consumer education and corporate efforts, circular economy initiatives in the city can start with plastic drink bottles.

“One day we will be able to use bottles made entirely from food-grade recycled PET plastics from Hong Kong, and people will know and trust them when they see them in our store shelves,” Cheung said. “I hope that will happen in my professional lifetime.”

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