What erratic plastic prices meant for a major manufacturer
Using recycled plastic is good business for Advanced Drainage Systems, but recent reports and interviews clearly show that it’s not always painless.
Advanced Drainage Systems (ADS), based in Hilliard, Ohio, recycles hundreds of millions of pounds of post-consumer polyolefins into plumbing and septic system products each year. The second-largest recycler of plastics in North America, the company produces post-consumer resin (PCR) at its processing plants and purchases PCR from outside suppliers.
But with the volatility in recycled and virgin plastic prices over the past two years, it hasn’t always been easy. High PCR prices and limited availability have limited ADS’ efforts to increase the recycled content of its products, even as the company has invested heavily in expanding its recycling capabilities, particularly with its acquisition of $49 million from Jet Polymer Recycling in December.
The company’s recently released sustainability report for fiscal year 2021 (April 1, 2020 to March 31, 2021) showed that ADS purchased 510 million pounds of recycled plastic, down from around 50 million pounds, or 9%, compared to the previous year. In fiscal 2021, recycled resin accounted for approximately 47% of all direct material purchases (the remainder being virgin), up from 51% the prior year.
“This was primarily due to the availability of virgin materials at a more competitive price, as well as lower overall inventory levels,” according to the report.
Erratic prices affect the end user
Most of what ADS uses is HDPE, and in fiscal year 2021, HDPE bale prices increased significantly.
According to RecyclingMarkets.net, the average price for natural HDPE bales was over 33 cents per pound in April 2020, and it has steadily increased to over 77 cents in March 2021.
The rise of colored HDPE has been even more dramatic. ADS is a huge consumer of colored HDPE, which can easily fit into its black colored products (ADS estimates that it consumes about 28% of the pigmented HDPE bottles available in the United States). According to RecyclingMarkets.net, bales of colored HDPE went from about 4 cents per pound in April 2020 to nearly 24 cents in March 2021, an increase of about six times.
Since then, the market has gotten even wilder, said Brian King, executive vice president of product management and marketing.
“The year of our sustainability report has been fairly stable. Prices during this period were much more stable compared to this year,” he said in an interview with Plastics Recycling Update. “This year has been much more volatile.”
Data from RecyclingMarkets.net shows HDPE hit record high prices in September 2021 — $1.08 a pound for natural and 58 cents for color — only to plummet to 56 cents and 22 cents, respectively, in January 2022.
What this presents for a large manufacturer like ADS is the difficulty of planning the timing and amount of purchases. At the same time, ADS saw virgin HDPE prices rise from around 40 cents per pound in January 2021 to over $1 per pound in September, in what King described as high inflation in a short period of time. The curve was similar for PP prime.
In an interview, Nicole Voss, director of sustainability at ADS, noted that the winter storm that knocked out power to much of Texas a year ago helped to tighten the supply of virgin plastic, which pushed prices up. Tight supplies persisted, she said.
Price is certainly a factor affecting ADS’ use of recycled plastic, but “I don’t think we made a conscious decision to say, ‘Hey, we’re not going to tackle recycling,'” Voss said. . That being said, “You’re not going to significantly overpay for recycled content.”
Voss said the purchasing department noted last year that several new buyers in the recycled resin market were bidding higher to certain collectors who would have provided ADS than ADS contracts typically allow.
King noted that, for the purchase of ADS raw materials, recycled plastic has remained cheaper than virgin plastic (including off-spec), even as prices for both have increased. But one of the challenges has been figuring out where PCR is produced in the country, King said, adding that ADS didn’t want to truck recycled resin around the country, especially at a time of widespread disruption. of the supply chain.
“It was more of an availability challenge at times last year,” he said.
As most businesses and consumers are likely aware, inflation has not been limited to plastics markets. According to the Washington Post, year-over-year inflation rose 7.5% in January 2022, for example.
The construction market, in which ADS sells, was no exception. When prices for plastic raw materials increased, ADS passed on some of these costs to customers in the form of higher prices. The higher prices were a big deal for the company, he said, but ADS found relative acceptance in the market.
“I think our ability to manage, our ability to set the prices that we need to have a healthy supply chain, I think people got to grips with that very quickly,” he said.
Yet ADS did not pass on all of its higher costs and the profit margin was squeezed. The company also faced higher transportation and labor costs.
According to the publicly traded company’s latest quarterly report, ADS’ adjusted earnings before interest, tax, depreciation and amortization (EBITDA) margin, which is a key profit margin metric, was 24.3% during for the nine-month period ending December 31. 2021. This was down from 30.7% during the same period the previous year. Overall profit increased significantly, however, thanks to an increase in total sales volume and higher prices for its products.
Strategies to unlock the offer
Rather than strictly setting PCR prices, King pointed to increased competition for limited PCR supplies as a major driver of lower ADS purchases in fiscal 2021. Product brand owners of Consumers working to increase recycled content in plastic packaging have contributed to the crisis, he noted.
“We could use a lot more recycled content if we could source it,” he said.
Vertical integration into the recycled resin supply chain is a strategy ADS has used to ensure a steady flow of recycled raw materials.
ADS has a long-standing HDPE recycling facility in Waterloo, Iowa. In 2019, ADS acquired Infiltrator Water Technologies (IWT), a billion dollar deal that brought IWT’s recycling facility in Winchester, Kentucky under the ADS umbrella.
Most recently, on December 3, 2021, ADS purchased Jet Polymer Recycling, which is based in Fort Payne, Ala. and has three plastics recycling facilities in Alabama and Georgia. The purchase price was not disclosed at the time, but a quarterly financial report ADS filed with the Securities and Exchange Commission (SEC) on Feb. 3 shows the acquisition was valued at $49.4 million. dollars. Jet Polymer Recycling is the largest supplier of recycled PP to IWT, which produces septic systems.
Voss said ADS now produces about half of its recycled plastic needs in-house, buying the rest from outside collectors.
Voss and King also pointed to other possibilities for recycled resin. They said post-industrial scrap presents an opportunity for ADS. Additionally, the company supports industry efforts to help increase recycling rates in the United States and divert more HDPE and PP waste from waste to recycling streams. One such effort is working with The Recycling Partnership, King said.
“There are many opportunities to use more recycled plastics if we could remove them from the waste stream to landfills,” he said. In November, King wrote an op-ed for Resource Recycling arguing that federal infrastructure investments are also an opportunity to improve the nation’s recycling infrastructure.
Voss highlighted the work The Recycling Partnership has done in his backyard: partnering with the Solid Waste Authority of Central Ohio (SWACO) to increase apartment and condo buildings’ access to recycling services.
Voss said that in the long term, chemical recycling technologies could also play a role in ADS meeting its recycled content goals. The company’s goal is to use 1 billion pounds of recycled plastic per year by fiscal year 2031.
Mechanical recycling refers to widely used plastic recycling processes that involve sorting, downsizing, washing, melting and extruding waste plastics. Chemical recycling – called “advanced recycling” by the plastics industry – refers to processes that use heat, pressure and/or solvents to break down molecular chains in plastic, creating chemicals that can be used to produce fuels, waxes or new plastics.
Chemical recycling technologies can unlock sources of post-consumer plastic that are difficult to recycle through mechanical processes, Voss said, stressing that they should not be used to recycle plastic items that are mechanically recycled today.
“We’ll always go for mechanical recycling first because it has a lower carbon footprint,” she said, “but if that market isn’t there, it’s still a potential option.”
Ultimately, King pointed out that ADS uses recycled plastic not only because of the environmental benefits, but also because it’s a financial driver for the company. Some other companies sign sustainability pledges, only to find themselves later trying to figure out how to pay for them.
“We know that using recycled products is good business for ADS,” he said.
A version of this story appeared in Plastics Recycling Update on February 16.