Coca-Cola’s decision late last year to close down its recycling division comes amid increasing price pressures on polyethylene terephthalate (PET) bottle recyclers that promise to challenge profitability in the business for the next couple of years.
Coca-Cola Co. set up Coca-Cola Recycling in 2007 and supplied its own operations with recycled PET as well as used aluminum beverage containers for making new beverage containers. The company said in a statement that it plans to work with outside suppliers of PET and other recyclable material for new cans and bottles.
“The Coca-Cola Company’s current goal is to lead the industry in packaging sustainability including PlantBottle, reducing our packaging footprint and increasing recovery, and using recyclable materials,” the statement said. PlantBottle is a recyclable PET plastic bottle, made partially from plants that Coca-Cola developed. Since 2009, more than 20 billion PlantBottle packages have been distributed, and the company said its goal is to have all new PET plastic it uses contain PlantBottle technology by 2020.
According to Coca-Cola, “In the U.S., we will continue to work more directly with our value chain to increase the use of recycled materials. As the industry is evolving, we no longer need to directly engage in the buying and selling of recyclable materials.”
There is more PET reclamation capacity in the U.S. than bottles collected for recycling, according to Patty Moore of Moore Recycling Associates, Inc. in Sonoma, California. Other buyers or sellers should have no problem picking up the slack now that Coke is closing down its recycling unit, she said. Coca-Cola Recycling was also active in the used aluminum beverage can market. But that business is regarded as healthy as well, and the unit’s shutdown is also unlikely to have a major effect there.
A bigger factor in PET recycling right now is lower pricing for virgin PET. That’s causing price pressure on PET recyclers, Moore said. Recycled bottle-grade PET historically commands a higher price than virgin PET, due in part to consumer products companies’ desire to include more recycled content in their product. But there is obviously a limit to how much more companies like Coke will pay to get recycled bottle-suitable PET rather than virgin PET. As virgin PET gets cheaper, it may be harder for consumer products companies to justify paying more for recycled PET.
The oversupply of virgin PET is caused by normal business cycles, Moore said. These typically see companies in the business over-build new plants over a period of a few years in response to forecasts of shortages, then spend a few years reducing capacity. It will be a couple of years before the current over-capacity situation resolves itself, during which time PET recyclers will find it harder to command premium prices. “It’s going to make it a lot harder to make a profit,” Moore said.
Coke’s experience in recycling PET was marred by an investment in a Spartanburg, South Carolina, plant that experienced technical difficulties after its opening in 2009. That plant, billed as world’s biggest for recycling PET bottles into new bottles, closed for a period in 2011. Among the problems that caused the closing, according to the reports, was Coca-Cola’s insistence that the plant use only feedstock consisting of post-consumer curbside-collected containers. Coke later sold its stake in the plant.
However, Coke’s investments in plastics recycling elsewhere have been more successful and are continuing or expanding. The company recently announced plans to invest $8.2 billion over 6 years in Mexico as part of the opening of what it called the world’s largest food-grade (PET) bottle-to-bottle recycling plant in that country.
Domestically Coca-Cola remains active in recycling, including participating in programs to place recycling bins in communities across the U.S. It also recently joined the Closed Loop Fund with a number of other large consumer products and retailing companies. The fund, for which Walmart was lead organizer, is intended to help finance technologies, facilities and similar initiatives that aim to improve domestic recycling infrastructure. The goal of the Closed Loop Fund is to provide a more reliable stream of recycled materials for consumer goods companies to use in products and packaging.
Long term, Moore sees little reason for Coke or other companies in the consumer goods field to back off involvement in recycling efforts. “They want to make sure that recycling is successful,” she said. “One thing that all consumer products companies realize is that consumers feel better about products they can recycle. They want to be able to put them in their bins.”
The bottom line on the shuttering of Coca-Cola Recycling is that it appears to be largely an internal corporate decision to focus on its core business and rely on outside vendors for recycled materials, as opposed to a move dictated by outside market conditions. On other words, Coke isn’t giving up on recycling, just being in the recycling business. The fact the company sees other recyclers as able to continue to supply it with the recycled content that it needs to meet its recycling goals suggests the industry is healthy enough to do without Coca-Cola Recycling.
Moore said, however, that Coke’s timing of the exit is possibly significant, coming as it does just as virgin PET price drops are pressuring recycled PET suppliers. “That’s going to make it very difficult for the reclaimers in this country for the next couple of years,” she said of PET oversupplies. Coke closing its recycling business may actually help those recyclers by removing some competition for tight bale supply.
Published in the March 2015 Edition of American Recycler News