Plastic recyclers face meltdown from low oil price

The collapse in oil prices has forced energy companies to slash costs and delay projects, but it is pushing plastic recyclers towards the brink of disaster, the head of one of the world's largest waste companies has warned.

"It's really a financial crisis," said David Steiner, chief executive of Houston-based Waste Management, one of North America's largest waste collectors and processors by volume.

He told the Financial Times the oil rout had followed a fall in Chinese demand for recycled products that was already troubling the industry. "We've had a double whammy in the last six months: Chinese demand hasn't picked up and oil prices have come way down," he added.

Waste Management, which has a market capitalisation of $23bn, is now shutting plants instead of investing the $100m to $400m it has typically spent on recycling assets each year.

Plastic is derived from oil, and as crude has fallen in value from more than $100 a barrel in June to below $50 this year, there has been a slump in the price of the brand new, or virgin, plastic.

This has prompted many container manufacturers to favour virgin plastic over the recycled alternative.

Some container manufacturers prefer virgin plastic because it is easier to determine its exact chemical composition, but they will also buy the recycled alternative, because certain customers are eager to meet environmental targets.

However, with virgin plastic prices tumbling, recyclers have found it harder to compete and some companies have already failed in Europe where the industry is also anxious about lower oil prices.

"There's no doubt that the volatility we have seen hasn't helped recycling," said Roger Baynham, chairman of the British Plastics Federation's recycling group.

The outlook is grim if oil prices stay low, he added. "If nothing happens then one can see a situation where recyclers are going to continue to have a significant amount of pressure on their business," he added.

Prospects in the US are equally worrying, said Mr Steiner.

"At $50 oil, anyone that does just plastics recycling is out of business," he added. "If any business's business model is 'I'm going to give you a worse product at a more expensive price', you're not going to be in business long.

"It just doesn't make sense, unless you want to pay extra to use recycled material. There are certainly companies willing to do that but not many."

Mr Steiner said some smaller recycling companies on the US East Coast were already showing signs of strain, but the fact that Waste Management was shutting rather than opening plants was a sign of much larger problems for the industry.

"When the largest companies like us stop investing, that's horrible," he added.

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