In our ESG and Climate Piece tomorrow we will look at the impact on plastic waste initiatives of falling virgin polymer prices. If recycling initiatives stall – especially the more expensive mechanical piece – it will likely add to concerns that packagers already have around whether they can get enough material to meet their public goals on recycled content. If it then also looks likely that new materials – renewable based on biodegradable - may be either late to market or more expensive than anticipated the door opens wider for the chemical recycling advocates and also for alternative materials. The chemical recyclers also need collection and sorting to improve, but the more complex/forgiving the facility, the less rigorous the sorting needs to be. Also, this route is somewhat agnostic to the price of virgin polymers as the output is competing with fuels and chemical feedstock values. For chemical recycling to be economic, the price of crude oil must remain high. For chemical recycling to get the lion’s share of recovered plastic waste the price of oil needs to be high and the price of virgin polymers low – discouraging mechanical recycling. While this may spur more chemical recycling, the net effect of low virgin polymer prices would overwhelm the benefit of better recycling economics for the majors – many of whom make up the bulk of the existing and planned chemical recycling capacity today. That said, the more plastic waste that ends up in chemical recycling, the less of an impact there will be on virgin plastic demand
We have spent a lot of time over the last few weeks talking about polymer recycling and renewables and the chart below is another look at where plastic waste is coming from. Packaging is the big piece and it is also the area where customers, i.e. the packagers, are looking for the largest increase in the use of recycled materials quickly. As we noted in our ESG and Climate piece this week, increasing volumes of this packaging waste is moving into different use applications, such as building products and durables, and even more could potentially flow into chemical recycling – note that there are 7 headlines on chemical/advanced recycling in today's daily report. The packagers have little chance of meeting their near-term recycling content goals in our opinion, but they have zero chance if they do not accept chemical recycling as part of the mix. It will be important to accurately audit the chain of custody of chemical recycling to avoid double counting. The separate challenge with chemical recycling is the now increased focus on carbon footprints, as the pyrolysis process is energy-intensive, whether direct heat from burning fossil fuel or electric power-based heat.