Plastic recyclers struggle to compete after oil price crash

Plastic recyclers struggle with collapse in oil prices When Chris Dow opened his £35mstate-of-the-art plastic recycling plant in the industrial London suburb of Dagenham in mid-2008, the Australian entrepreneur had every reason to be optimistic.

The UK government had announced a jump in landfill tax to spur the country's sluggish recycling rates, and sweeping EU measures to boost waste re-use were about to be unveiled in Brussels.

The dairy industry was launching a scheme to encourage more recycled plastic milk containers and crucially, global oil prices had soared to a record of more than $140 per barrel.

Most plastic is derived from oil so when crude prices are high, it makes it more expensive to produce the virgin or brand new plastic that container makers often find easier to handle than the recycled alternative.

"Recycling was all the rage," recalls Mr Dow, whose Closed Loop Recycling factory soon had 120 employees turning discarded bottles into pellets that plastic container-makers would then use to supply companies such as Britvic, the drinks maker.

Oil prices slumped sharply during the global financial crisis but recovered relatively quickly and by 2011, Mr Dow was announcing plans to double his annual production capacity.

But then disaster struck. Global oil prices began sliding last summer, eventually plunging to less than $50 a barrel.

Prices of widely-used virgin plastic such as polyethylene terephthalate, or PET, sank in turn, from £1,013 a tonne last August to £840 in March, according to Wrap, a UK government-backed body that promotes recycling.

That price crash sent a chill through the recycling industry across the world, as plastic container makers began favouring virgin material over recycled.

For Mr Dow, the oil price rout timing was dreadful. "Two minutes after we finished the expansion, the world collapsed," he says, explaining the cost of his main raw material - discarded bottles - stayed flat or even rose because of overseas demand, while his rivals making virgin plastic benefited from the sharp fall in the price of their main feedstock: oil.

Mr Dow is now in talks with investors and suppliers in an effort to stay afloat.

Others have already collapsed. Lincolnshire's Eco Plastics, one of the UK's biggest plastic bottle recyclers, went into administration in December before being bought by Aurelius, a European investment group, later the same month.

Recyclers in Germany and several other European countries have also hit the buffers, says Jim Armstrong, a recycling industry expert who is advising Aurelius on the restructuring of Eco Plastics.

"With low oil prices, if you are making a recycled plastic and you're trying to compete against virgin oil-based plastic, it is extremely difficult to make it work without some kind of structural financial support," he adds.

Plastic is one of the last frontiers of recycling, in part because there are so many different types of it that it is trickier to sort and process than metal, paper or glass.

But it can take so long to decompose that it is a menace to the environment, prompting government efforts to boost recycling rates that have led the industry to grow from virtually nothing 25 years ago into a sector with an annual turnover of €2bn in Europe alone.

There, about 1,000 mostly small companies employ some 30,000 people to process more than 3m tonnes of plastics a year, according to Plastics Recyclers Europe, a trade body.

The industry has grown elsewhere but the latest spate of low crude prices is putting pressure on recyclers in other countries as well, says Mike Biddle, founder of MBA Polymers, a pioneering plastic recycling group that began in the US and now has operations in China, Austria and the UK.

"It's had a huge impact on plastics recyclers," he says, adding lower global demand for materials had already been hurting both virgin and recycled plastic producers.

But the oil price fall enabled virgin manufacturers to lower their prices, giving them a big commercial advantage over recyclers. With oil prices bouncing up slightly in recent weeks, it looks as if virgin plastic prices are stabilising. "The question is where do we go from here?" asks Mr Biddle.

Several plastics recyclers in the US are under pressure, according to James Devlin, chief executive of North Carolina-based ReCommunity Recycling, a large independent recycler that processes a range of materials including plastics.

"Comparing March of 2015 versus April of 2014, our overall commodity revenue, on a unit basis, is down over 20 per cent," he says, adding revenue from recycled plastic was down by a larger amount.

In the UK, the dilemma lower oil prices are posing for plastic recyclers has led to calls for more industry support.

Stuart Foster, chief executive officer Recoup, the industry support group, says surveys have shown consumers would support laws giving bottle manufacturers a responsibility to include recycled content in plastic milk bottles, even if that meant higher prices for consumers.

"The financial drivers need to exist for manufacturers to actually use recycled instead of virgin plastic in their products," he adds.

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