I have been thinking a lot about recycled plastic lately, mainly recycled PET plastic. PET is a very common type of plastic: turn over a bottle — see the number 1 inside a triangle? — its PET.
Recycled PET is PET made from previously used PET plastic bottles and containers that were recycled by you or your neighbor.
Virgin PET on the other hand, is an evil twin to recycled PET, and comes from oil, petroleum, natural gas — you get it.
I have been working to increase the amount of recycled PET available for use in the supply chain. Mainly because I love the ocean, and hate that it’s filled with plastic.
There has been a lot of talk on how to introduce more recycled PET into the supply chain — for decades — mainly because big consumer brands have made commitments to use it in their packaging.
Some inside knowledge: these brands actually make commitments every few years and have no path to achieving them. There is always some excuse: “not enough supply available”, you and I “don’t recycle enough”, “price is too high”, “we require a different type”, “doesn’t fit our brand design”, and on…
Now with Covid-19, virgin prices of PET have plummeted leaving recycled PET prices much higher.
I have heard from several producers of recycled PET, that brands are cancelling orders and buying more virgin.
And now I read that brands want to tax virgin — come on. This is probably a case of one department not talking to another department. There is zero way the procurement departments will authorize the six zero impact of this move.
I repeat, the virgin PET industry is 6.5 times larger than the recycled PET industry
This is a massive spread — making the recycled PET industry look like a cottage industry compared to the virgin PET market.
Given this spread, one would think the price difference would be massive, too.
Pre-Covid, the price of virgin PET was $0.63 per lb and the price of recycled PET was approximately $0.75 per lb
During Covid — definitely unusual times — the price of virgin PET is between $0.40 and $0.50 per lb and the price of recycled PET is around $0.65 per lb
Therefore, recycled PET holds a 1.2 to 1.6x premium over virgin PET.
Not too bad — if you ask me — especially given the infrastructure dominance of the virgin industry plus the fact that recycled PET brings so much more value to our communities, fellow citizens in the form of jobs, cleaner air, water, and land, and on and on. In fact, I would feel robbed if I were a buyer of virgin PET.
But wait, I have heard about price deltas between something good and something bad before. Yes, there was a time when clean renewable energy held a premium over dirtier forms of energy.
What did we do about that?
We built more wind farms. We built more solar farms.
And the price for clean renewable energy came down — to a point where the CEOs of theses same consumer brands companies are doing videos about how awesome they are for buying cheap, clean renewable energy.
So — maybe — let’s stop all the expensive PR and congratulatory conferences, and just build more recycled PET plastic mills.
By my math, we need around 65 for PET plastic.
Today, we have a handful.
As we grow recycled PET capacity, the price of recycled PET will drop below the price of virgin — and the PR-studded commitments will stop being just talk, and actually walk.
We do not need all 65 to get the price to drop; remember, recycled PET only holds a 1.2 to 1.6x premium over virgin PET. We can probably get to price parity with a more new mills.
The guy or gal in the back of the room is probably yelling at me right now: “But you need to increase collection to supply those new mills.” Yes, you are right — but…
Did you know that 80% of the PET plastic recycled in this country is sent to mills that make carpet and other fibers, like clothing? — yes 80%
Only 20% goes into new bottles — give or take.
And now — as a result of Covid-19 — those carpet and fiber mills are shut-down, not running, not buying. And we have loads of recycled PET sitting around looking for a home. Recycled PET that the brands should be buying to supply the new mills we need to build.
Let me break it down: