The North American plastics recycling industry is feeling the heat as prices for offgrade virgin resins take a downward turn. The increase in production capacity, coupled with a slowing economy that is reducing demand, has led to a drop in prices for many virgin resins. Further, reduced operating rates at resin producers generates a larger percentage of offgrade / transitional material which adds to the pricing pressure. Plentiful well-priced virgin supplies is contributing to a shift in raw materials preference among molders, who are often opting for these offgrade resins due to their equal or lower cost compared to recyclable materials.

While some buyers are willing to pay a premium for post-consumer resins, both for a love of the environment and to show social awareness, economic viability is still very important. Recycled polyethylene and polypropylene are typically used in durable goods such as pipes, pallets, plastic lumber, and gardening supplies because they are usually cheaper than virgin resin. However, the competition from low-cost offgrade resin is proving to be a challenge for recyclers who have relatively high costs to gather, clean, grind and re-extrude the resin into repossessed pellets.

There are also concerns about whether buyers will remain committed to using recycled resin to meet their sustainability goals and pledges. It is suggested that companies need to take a longer-term view when it comes to their sustainability goals and the use of less virgin and more recycled materials. They need to consider the average cost of post-consumer polyethylene or post-consumer polypropylene versus offgrade virgin over a longer time span and whether or not it's worth to pay up for the intangible goodwill and marketing benefits.

Long-term supply contracts could potentially provide a solution for recyclers, but the preference for maintaining the option to switch back to offgrade virgin is a deterrent. Despite the challenges, demand for recycled resin is growing, but recyclers need to be prepared to deal with the competition. The current market environment is tough for recyclers as they are competing against off-grade pellets, in addition to virgin pellets. The key question is whether they can financially weather the storm.