Destruct to Reconstruct: Opportunities and Challenges in rPET in China

In recent years, the Chinese government and local associations have jointly made efforts to speed up the development of a circular economy for plastics, introducing a number of policies, proposals, regulations, and guidelines for plastics recycling and reclamation. These efforts, coupled with the plastic waste import ban of 2017, have further strengthened domestic plastic recycling. As a consequence, the volume of imported recycled plastic pallets has skyrocketed in order to fill the feedstock shortage. In addition, growing consumer awareness of sustainability issues is leading to increased public pressure on manufacturers and brands. This is pushing the recycled plastics market forward on the right track, with both opportunities and challenges emerging.

Food-Grade rPET Demand Projected to Surge

Worldwide, many major global beverages and fast-moving consumer goods companies have committed to a minimum of 50% recycled content in their plastic packaging by 2030. Due to this, there will be a growing demand for food grade-certified recycled materials. However, the current limited global supply of food-grade recycled plastic makes it a huge challenge for these brands to secure sufficient volumes of high-quality food-grade rPET in the longer term. As a result, some domestic rPET converters have identified this as an opportunity to expand their food-grade rPET production capacity domestically and abroad. Veolia Huafei is one of the largest rPET manufacturers in China. The company is scaling up its rPET bottle flakes capacity from its current 30,000 metric tons to 100,000 metric tons by 2021, while Hailu New Materials plans to invest CNY 450m to build a food-grade rPET plant in 2021. It is also evident that there is an increase in greenfield investment for recycled PET pallets by Chinese investors in neighboring countries, such as Vietnam and Malaysia.

More Alliances and Partnerships Between Value Chain Stakeholders

Stakeholders, including petrochemical manufacturers, materials manufacturers, recyclers, retailers, and brand owners, throughout the chain are actively committing to plastics recycling. They are working with partners to increase recycling rates, to improve quality, and to create new applications. For instance, Dow announced a partnership with Luhai, an integrated waste management company in China, in September 2020. Jointly, they will create new circular plastic solutions for the Asia Pacific region, with Dow using its expertise in materials science and application development and Luhai focusing on plastic waste collection. Another example is the cooperation between materials manufacturer Covestro, domestic beverage leader Nongfu Spring, and plastics recycling company Ausell. The collaboration enabled 19-liter polycarbonate water barrels to be recycled for use in the electronics, home appliances, and automotive industries.

In another example, e-commerce giants are cooperating with consumer brands to establish PET bottle recycling systems. JD.com has teamed up with Coca-Cola China, while Alibaba has partnered with Unilever in China. These initiatives aim to bring high-grade PET bottles back into a closed-loop recycling system

Stakeholders are taking on the responsibility of creating an innovative recycling system and network and involving consumers on a large scale. The effectiveness and impact of these recycling systems will gradually be established, which will, in turn, benefit each stakeholder in the near future. In fact, the implications for the industry go deeper than that. The involvement of large, financially sound companies may help accelerate industry consolidation and eliminate smaller, less risk-resistant, inefficient, and unprofitable players.

Technology-Driven Investments

The advanced technologies that can provide safe, efficient, and scalable solutions to plastic recycling will bring investable opportunities along the supply chain. With 5G and the Internet of Things (IoT) entering the waste management industry, the future of plastic recycling looks promising. In China, there has been a growing number of domestic companies using IoT technology to engage in innovative and traceable management solutions for PET recycling and regeneration. INCOM Recycle, an IoT-based reverse-vending machine provider, utilizes IoT technology to make raw material recycling transparent and traceable. It achieves a complete closed loop, ensuring the whole chain is clean, safe, and environmentally friendly. Meanwhile, the application of artificial intelligence (AI) in the plastic waste chain presents plenty of opportunities to improve efficiency, reduce costs, and enhance quality. This has motivated industry leaders to invest in this sector to raise a competitive barrier. For example, Jiangsu LVHE Environmental Technology Co has introduced a robotic waste-sorting system from ZenRobotics of Finland to enhance their operating efficiency. The growing demand has also triggered an investment boom in AI applications for plastic recycling, with a number of startups emerging in China, such as Data Beyond and Jinlu Technology.

Further Implementation of Domestic Waste Sorting

The bottom line is that the supply of PET packaging will grow, albeit slowly, driven by the overall growth of the Chinese population. The growth will also be underpinned by soft drinks, edible oils, and condiments (the largest PET off-takers, with CAGR of 3.8%, 4.4%, and 4.6% respectively from 2020 to 2025) and by some transition from glass bottles into PET. Industry experts expect the Chinese government’s overall goal of further promoting the sorting of domestic waste and reaching a recycling rate of 35% or higher for municipal waste nationwide by 2025 to spawn 2m metric tons of PET waste recycling in densely populated areas, such as east China, south China, and central China. This will, to a large extent, allow more feedstock to circulate in the market and reduce pressure on the supply side.

There are also significant challenges facing the recycled plastics market. This includes but is not limited to: 1) barriers created by the current, highly fragmented system, which lacks clear responsibilities and supervision for each stakeholder across the value chain; 2) remaining uncertainty about future regulations – for example CO₂ taxation and a full ban on recycled plastic pellets; and 3) the relatively weak operating conditions likely to persist. If the plummet in crude oil prices holds, the spread between virgin resin and rPET might shrink incrementally. This means that pure raw material economics could discourage the substitution of recycled resin for virgin in the short term.