Plunging price of oil and the demand for recycled plastic
The impact of the COVID19 pandemic has had enormous repercussions on the oil industry. The unprecedented fall in demand sent prices plummeting, causing shockwaves to ripple through the plastic recycling industry and circular economy.
The price of virgin material is linked to the price of oil and, naturally, as oil prices fell virgin plastic became much cheaper, meaning manufacturers have started to choose to revert back to virgin plastics to save money over the more expensive recycled polymers.
What influences the price of recycled resin?
The elements that influence the pricing of recycled material are completely different to virgin plastics.
The collection, sorting and cleaning of material sent for recycling, as well as the cost of energy and equipment required is unconnected to the cost of virgin plastic, but contributes to the discrepancy in pricing between virgin and recycled plastic.
Historically, regardless of its use, recycled material generally occupied a price level below virgin material. However, the price of recycled material has been on the rise for the past three years, when public consciousness was raised on the matter, putting pressure on brands and retailers to commit to sustainable processes. We’ve seen this most notably with rPET pricing.
Since this point, recycled content has been closely linked to brand sensitivity, and the inclusion of recycled material is still driven by consumer demand rather than legislation at this point. COVID19 will be a critical moment for those brands and retailers when it comes to resisting the low prices of virgin material and continuing to use recycled content.
While, financially, it might make more sense for brands to succumb to virgin plastic, they might find that the decision causes long-term damage to the brand, impacting consumer trust and loyalty.
Will COVID19 impact sustainability commitments?
It looks like, for now at least, larger firms have no plans to change their sustainable packaging commitments. Unilever announced to Eco-Business that the business’ commitments, ‘remain unchanged’, with ‘robust plans’ to meet its established target to increasing the volume of recycled content in its packaging to 25% by 2025. Unilever estimated that last year, recycled content accounted for just 5% of the company’s plastic footprint.
Another consumer goods brand, Henkel, has also stated that its commitment to using recycled material will not be affected. It plans to continue to meet its sustainable packaging target to use 30% recycled plastic in its product packaging by 2025.
We envisage businesses that have publicly committed to reducing the use of virgin material and increasing the volume of recycled content in their operations will not veer away from these goals, for fear of damaging their reputation.
The price of oil will always impact the price of recycled plastic on some level until legislation around the use of recycled content comes into force. It has certainly hurt pricing since the start of the pandemic and will continue to do so in the near future. The nearest respite appears to be the introduction of the plastic packaging tax in 2022.