Low Oil Prices Bad News for Recycling

Crude oil is the traditional starting point for the many plastics that are essential to modern life. Approximately three percent of worldwide oil production is used to make plastics. Due to this relationship, the cost of plastic is closely tied to the price of oil. And since June, the price of oil has been cut in half, leading to a decrease in the price of new plastic.

Crude oil components such as ethylene and propylene are the basis of plastic production. These components are obtained from the "cracking process" used in refining oil and natural gas. These raw materials are chemically processed to make monomers, which are then processed into polymers. The final product is a pellet or bead that is melted and molded into different shapes and thicknesses depending on the application.

Another way to produce plastic materials is to recycle plastic that has already been used. Recyclables are collected by waste disposal companies who sell the used plastics to firms. The recyclables are then sorted by type and color, cleared of contaminants, shredded, and melted back into pellets.

Before the fall in oil prices, many companies sacrificed choosing the exact chemical makeup of their plastic materials for the cheaper price of recycled plastics. At the start of this year, new plastic used to make soft drink and water bottles cost 83 cents per pound, fifteen percent higher than the cost of its recycled counterpart. For years, purchasing recycled plastic had been the cheaper alternative, and firms on both the buy and sell-side capitalized.

However, as of late March, the cost of new plastic had fallen to 67 cents per pound, or 7% less than the recycled form, which costs 72 cents a pound. This drop in prices now gives companies the chance to have the best of both worlds: cheaper prices and the ability to choose the exact chemical composition of their materials.

The negative effects are already being felt by recycling companies. One U.S. company reports that its sale prices for some types of plastic have been halved in 2015. In the U.K., the nation’s largest plastic milk bottle recycler, Closed Loop Recycling will face bankruptcy if it does not receive government or industry support. The fall in oil prices was the last straw for another U.K. recycling company as its assets were acquired by an investment company in December. The firm, ECOPlastics Recycling, cited “unfavorable market conditions” as the cause of its financial troubles.