Recycled plastics industry gets unexpected boost from Iran War

As the war with Iran sends the price of virgin plastic through the roof, speculation is mounting as to whether recycled plastic may finally have its day after years of struggling to gain a foothold among manufacturers.

Not since the collapse of the global recycling market in 2018 and the COVID-19 pandemic has the world faced such a major shock to the production and sales of plastic products made entirely from oil and gas.

Today, roughly half of global ethylene and polyethylene supplies are stranded, restricted or directly affected by the shutdown of commercial shipping in the Strait of Hormuz, a major transit point for 20% of the world’s crude oil.

Typically recycled plastic is more expensive than virgin plastic. But in April, that calculation began to change in many markets as the cost of plastic used in car parts, toys, bottles, food containers, cosmetics and many other products began to rise.

“Recycled plastics are having a big moment,” said Matt Slutzker, principal analyst at Wood Mackenzie, a global research and consulting firm.

According to Slutzker, who stated that refineries and production facilities in Asia cannot receive the materials they need for processing, the war in the Middle East has already significantly affected the supply of plastic packaging.

In Western markets, including the US, manufacturers such as Dow Chemical have announced price increases (of 30% to 40% in some cases) for the two plastics most used in packaging: Polyester and polyolefins.

In late March, Dow told customers it planned to double the previously announced price increase on plastic resins. During the company’s first-quarter earnings call last week, CEO Jim Fitterling said he predicted prices would rise even further.

Recycled plastics, made from post-consumer, industrial and agricultural plastic waste, are not that closely tied to oil and gas markets; prices remained relatively stable throughout this period.

“I’ve heard both recyclers and compost producers say that higher oil prices help them because they compete with fossil fuel-derived alternatives (plastic and fertilizer, respectively),” said Nick Lapis, Californians’ director of anti-waste advocacy. “But I think many people have long-term purchase agreements, so temporary fluctuations in price may take some time to subside.”

The wartime boom in recycled plastics came after a particularly difficult period for the industry, and doubts about the future of plastic recycling remain deep-seated.

Last year, seven polyethylene terephthalate, or PET, recycling facilities in the United States were closed; this accounted for 25% of the country’s capacity. PET is the plastic used to make water bottles and food packaging. It is number 1 in the recycling labeling system.

Plastic recycling took a significant hit in 2018 when China banned the import of most plastic waste. By then, China was importing nearly half of the world’s used plastic, and the collapse of that market sparked turmoil among U.S. recyclers and resulted in more used plastic being sent to landfills.

Later, during the COVID-19 pandemic emergency, the demand for single-use plastics in personal protective clothing increased the demand for virgin plastics.

Despite recent positive price trends, plastic recyclers remain skeptical about the long-term prospects.

“War is not a long-term policy,” said Steve Alexander, president and CEO of the Assn. Plastic Recyclers Group.

While some types of recycled plastics, such as polyethylene, may see a temporary increase, it’s unlikely to last long, Alexander said. It is likely that the price disparity will change again when the Strait reopens.

In addition, high transportation costs increase the costs of companies to access the recycled material market.

Meanwhile, getting manufacturers to switch to recycled plastic isn’t as easy as turning a light on or off.

Most manufacturers have pre-existing contracts with plastic suppliers.

“There are still contracts to be fulfilled, and they are typically quarterly or monthly,” said Sally Houghton, general manager of the California PET Recycling Company.

There are also a few ships at sea still carrying pre-war inventory, meaning cheap raw materials are still making their way to processors.

Alexander said until governments mandate that product manufacturers use recycled material, companies will stick to virgin material because it’s plentiful and cheap.

He said it was a shame that more recycled plastic wasn’t used in production. Research from UC Berkeley and UC Santa Barbara Demonstrating policies that mandate the use of recycled material is the most effective way to reduce plastic waste and overall plastic production.

There are clear benefits to using recycled plastic: Less new plastic ends up in the environment, reducing greenhouse gas emissions by reducing the energy needed to make new products.

Alexander said a California law taking effect in 2022 aims to expand recycled material opportunities as it requires 100% of single-use plastic sold in the state to be recyclable or compostable by 2032. But even then, manufacturers are likely to import cheaper materials from elsewhere, where energy costs, environmental regulations and worker protection measures are not factored into the cost.

Times staff writer Blanca Begert contributed to this report.