Understanding waste is the key to understanding recycling chain volatility

For most waste managers, no imagination is required, this is their daily reality. And it’s one of the biggest drivers of volatility throughout the recycling chain globally.

Waste originates from both the public and industry, and as a result, the composition and quantity of waste generated at any one time varies continuously depending on consumer behaviour and industrial production trends.

Waste managers typically hold contracts for waste collection with municipalities. They cannot turn material away. Because of variations in consumer and industrial production trends, different countries can have vastly different supplies at any one time.

The quality of that input waste (how contaminated it is, the tensile strength etc.) depends on a variety of factors including how it’s been treated and stored before its entered the chain, the type of additives it contains, what other materials it has come into contact with (because contact with substances such as polyvinyl chloride (PVC) causes contamination), level of discolouration, gel content, and odour.

Coupled with this, the more times a polymer has been recycled, the lower its tensile strength, and typically end-use suitability becomes increasingly limited. How many cycles it takes before the waste material becomes unusable varies from polymer-to-polymer, process to process, and level of other degradation.

The longer you store waste (this is typically, but not exclusively, in the form of bales) without reprocessing it – or selling it on for reprocessing – the more it degrades.

This can be due to several things, including the contaminants it contains, thermolytic degradation (from heat – typically the sun), and hydrolytic degradation (from water – common in the case of polyethylene terephthalate (PET)).

Meanwhile, new (and perhaps more valuable) strains of waste are constantly entering the chain, and warehouse space is limited.

If the waste quality is too low, then waste managers either need to dispose of the material, sell it to the burn-for-energy sector, or use it captively for energy creation. Burn-for-energy bales typically sell at negative values, whereby sellers pay for the removal of waste based on cost saving against alternative disposal methods.

As a result, most waste managers look to offload bales within a timeframe of around 4–6 weeks (although this varies from market to market).

Reprocessed recycled material, meanwhile, serves a huge variety of end-use markets. Major offtake markets include, but aren’t limited to, packaging, construction, automotive, outdoor furniture, refuse bags, strapping, and horticulture.

Demand between the end-uses also varies dramatically, and players in each market purchase for differing reasons.

Some markets, such as packaging, are heavily driven by brand sustainability targets and regulation, other markets, such as construction, mostly purchase on cost saving against virgin.

This has huge impacts on willingness to pay, intensifying legislative and consumer pressure on sustainability in packaging over the past few years has seen a significant pricing gap develop between display packaging suitable, and non-display packaging suitable grades across most global recycled polymer markets.

There is currently, for example, a spread of up to €1,500/tonne between the highest priced grade of Europe recycled polypropylene (R-PP) pellet (which is a post-consumer natural grade predominantly used in domestic goods and cosmetic applications), and the lowest priced grade (which is black injection-moulded pellets, which typically serves non-packaging applications).

Ideally (from their perspective) waste managers and recyclers would primarily serve applications driven by sustainability targets where premiums are typically highest.

Nevertheless, each downstream market has differing technical requirements  – with display packaging and automotive typically having the strictest technical requirements and construction, bin bags and outdoor furniture the lowest. This means that there is typically a higher volume of material sold into non-packaging applications.

While sorting allows waste managers to extract the valuable fractions and, to an extent, control contaminants etc. it doesn’t control the input waste mix. So the type of material suitable to serve each application is changing constantly. There is also a direct correlation between feedstock waste quality and reprocessed output quality for both mechanical and chemical recycling.

This creates a continuous supply/demand mismatch that is often underappreciated by players newly entering the market.

This mismatch coupled with the need to offload material relatively quickly is the reason, for example, 90% mixed polyolefin bale prices have traded as high as €600/tonne ex-works NWE (northwest Europe) and as low as €0/tonne ex-works NWE since July 2022.

Because waste fractions typically produce a variety of different flake and pellet grades depending on what is extractable from individual bales – especially for recycled polyolefins – they typically react to system-wide demand in each locality.

Individual flake and pellet prices, though, often react to demand from specific end-use markets. This can result in periods where waste bale prices are high but prices for some flake and pellet grades those bales serve are low, resulting in squeezed margins.

This is especially true for grades that are purchased for cost-saving reasons, meaning that they need to aggressively compete with virgin and off-spec material.

The reverse also regularly occurs, whereby bale prices can be low because demand in key end-uses such as construction is weak and general availability of waste is high, but volumes extracted for packaging suitable grades are limited and demand from that particular sector is firm.

It is also increasingly common for material with broadly identical specifications to trade at different price levels depending on which sector it is being sold into.

Further distortions in the chain are created because reprocessed material such as flakes and pellets can be stored for long-periods of time, and flake and pellet producers are not forced to offload material as quickly as waste managers.

This leads to fragmented and localised downstream markets, where spreads against feedstock costs and profitability are constantly shifting.

Volatile feedstock costs also results in challenges for investment. This is particularly true for emerging technologies such as chemical recycling and bio-based plastics.

That is because new producers seeking private investment are often required to project future costs (typically for a period of at least 5 years), with waste feedstock typically their largest variable cost. The unpredictability of waste values make this a herculean task.

When players first explore circular plastic markets, they are often surprised by the variability and fragmentation of prices through the chain. In the majority of cases the direct cause can be traced back to the feedstock waste markets.