Chemical Recycling: Break It Down

was actually thinking about waste management. He turned to me and he said, Mom, I'm going to eat this granola bar and throw the wrapper in the trash. The trash will go to the landfill, but it might not stay there. It might fall into the ocean, and once in the ocean, it will break into tiny bits and get eaten by fish. Then I'll eat the fish. So I'm just thinking I might as well eat the granola bar with the rapper

still on it and get it over with. My kid is seven, so I was pretty floored by this off the cuff life cycle analysis. But the truth is he might be right. That's one of the reasons why companies are looking in innovative ways of recycling today. On Bloomberg switched on, we speak with il Han Savut, who is a bienn f analyst focused on clean manufacturing and sustainable materials, joined by Julia Atwood, who leads our Advanced Materials team.

They wrote a research note titled Chemical Recycling Technologies, Costs and Capacity, which bienny f subscribers can access on bienf dot com, on the benny of mobile app, or the Bloomberg terminal at biennyf Go. As a reminder, b any F does not provide investment or strategy advice, and you can hear our full disclaimer at the end of the show. I'm Dana Perkins and you're listening to Switch It on the bienf podcast. Hi il Han, Hi Julia, thank you

for joining us today. Thanks for having us, Dana, thanks for having us. We are going to talk about chemical recycling today. And I must admit when I first looked at this research note, I was thinking of being in my chemistry class and I was thinking about, Oh, there's going to be these chemical molecules floating around, and surely somebody off in some obscure place needs to recycle those

for their business need. And then I got into reading this note prepping for today and realized that actually we're talking about the real waste dream that you and I and everybody we know actually participates in. So let's start talking about chemical recycling. But let's rewind and talk about what is recycling and then how does chemical recycling fit

into all of this. I think that's a great place to start, because there are a bunch of different types of plastics that I think we as consumers don't really appreciate, and currently most plastic waste is recycled mechanically, and mechanically recycling is a very simple process where you kind of just sort plastic. You shed it, wash it, melt it, and make new plastic. So I put in the bin and then at some plants somewhere they take it and

kind of sorted out by type. Yeah, but because it's a simple process, it means that it has to be meticulously sorted, right, So you have to sort by grade and type. And I think a good analogy is so imagine that different colors of plato are different types of plastic, right, and if you're a recycler, you essentially receive a giant ball of play dough that has a bunch of different colors.

Nobody likes plato that's all mixed together. That's the worst hate that, And what you have to do is separate the play dough by different types of colors, because you want high purity and high quality plastic output, recycled output that's of only one color. But what complicates it even more is that most plastics have a bunch of chemicals and additives that are added during production. So imagine that your play though also has glue and glitter and pieces

of paper. So even if you manage to kind of separate it out by color, separated out by color, you have to then remove all this stuff that's in it. And with mechanically recycling, you essentially have a spoon to do all this is that the primary reason most things don't get recycled because it's some alarmingly low figure of things that go into the recycling bin don't actually make it out. I mean, what is it seven something like that, Depending on the country, Yeah, it really depends. In the

EU they do much better. So for some plastics it's as much as but there can also be some funny accounting. Their incineration with energy recovery is sometimes considered recycling. One of the other issues is obviously collection right, you have to be able to recover the waste and get it back. But then a huge part of the problem is that sorting and decontaminating the plastic waste is so hard and so expensive, which makes it really hard for recyclists to

kind of produce high quality, high purity recycled material. And when you don't have high purity and high grade recycled output, it kind of limits its applications and also is sold at a a discount. So the limited applications. For example, recycled plastic can't really be used in food packaging, which is a main application of flexible packaging for example. So those kinds of limitations really prevent the market from taking off.

So what is chemical recycling as compared to mechanical recycling. So, chemical recycling is a pretty broad term that refers to these new recycling technologies that use some sort of chemical process to take waste plastic and make it into virgin

quality material. And there are two types. One is monomer recycling, where you take a plastic and kind of go back to the base unit or the monomor, and the other is feedstock recycling, where you heat up the plastic waste to a high temperature in the absence of oxygen and go back to the original feedstock that was used to make the plastics. So we are back to my chemistry lab in high school. Now. Yeah, but we can also

go back to the play though analogy. Okay, so in monomer recycling, you still have to sort the waste by type of plastic, so you're still sorting your play though by color, but you can leave some of the glue and the glitter and that stuff in it, so it has a higher contamination tolerance because you're chemically or thermally breaking down the plastic to its base unit, so that kind of gets rid of all the contaminants that mechanically recycling can't get rid of. This is mostly done for

PT and polystyrene. In the case of feet stock recycling. There you have your play though, but you can basically have multiple colors in it and leave the stuff inside and then you pyrolyze or your feet soccer recycled the entire giant play doll ball and you get a play doball that has no color that can be made into any plastic in the recycling world. This sounds pretty fancy. Therefore expensive, is it an expensive process? It is. It's

more expensive than mechanical recycling, but it is profitable. There are two main reasons why it is profitable. Is that your feet stock costs is extremely low because you're using

waste plastic that's being incinerated or land filled. And the other is that because you're producing virgin quality material, you can sell at a high price, so you can get the price that virgin plastic is being said, theoretically, the chemically recycled products could be used for food in some circumstances, and then the feedstocks do they first go through mechanical recycling and then the chemical recycling gets what's left, or

are these different recycling plants altogether that are buying the same waste material and then doing what they want with it. So it's still a pretty new markets, so we still don't know how the logistics will play out in terms of waste management and the waste management infrastructure and how

they'll interact with these new types of recycling plants. But ideally what you would have is you would sort it out for mechanically recycling, because mechanic clearly recycling has a lower costs and has a lower carbon footprint, and then whatever you can mechanically recycle, you would chem and clear recycle. So let's go back into the economics and you're saying this is profitable. Do we have an idea of what these margins look like? So the margins are pretty big.

They're double digits around for pyrolysis, a bit higher for e polymerization, so monumo recycling. So you're saying that it's the waste treatment facilities that are making money in this? Is that a highly fragmented market. Are these big companies or are they small companies that are part of our typical municipal waste collection. It's the recyclers that are making the money, which isn't necessarily the waste management facility, depends on how the supply chain is kind of set up,

but it would be the recycling. But again it's a quite new market. And usually these new recyclers, which are startups, are partnering with big corporate names, either brand owners or chemicals companies, so it's probably a bit of profit sharing. Okay, who are the brand owners that are getting involved? Really interesting thing is that there are so many very different and very disparate companies that are getting involved in this.

Because the technology is held by really small startups. You're not seeing the huge recycling companies that we would think of like Veolia or Waste Management who are investing in this. It's much more people like Coca Cola who really care about what happens to their waste because that's important to their consumers. So Coca Cola, together with PepsiCo and Corrig

Dr Pepper putting a hundred million into recycling. And then you have the chemicals companies that have a massive stake in this because they make these plastics, like Indo Rama they've put one point five billion into recycling over five years. And then you also have the oil companies who are starting to worry about whether or not they're going to be able to sell what they've been selling for a hundred years. So you have people like BP who have actually invested in house and are going to build a

twenty five million pilot plant as a chemical recycler. So there is money in this market, but it's not going to the traditional waste management sources. Yeah, like the partnerships I think can be put into two. You have the brand owners that are mostly involved with PT recycling just because it's a very visible plastic product. That they use.

For example, Coca Cola has made a very public commitment about using hundred percent recycled pt by so in order to kind of meet those targets, they really have to make sure that these technologies are commercialized and can produced

a scale. On the other hand, for pyrolysis and police starting depolymization, you have more chemical companies, as Julia mentioned, being involved because they're they're both scared of policy risk, but at the same time they can also see fall in their feedstock costs if they buy these recycled based chemicals. Let's talk a little bit about the feedstocks that are you know, this waste that goes into it, and I think it was the movie The Graduate where they set

the futurist plastics and we're definitely seeing that. So I think you guys point out in the note that the production of the six major plastics that reason for most of the stuff we we interact with has actually doubled since two thousand, so the last twenty years twice as much plastic and we're seeing that actually being a pretty

big growth area going into the future. So there's space for virgin feedstock, but then there's a lot of space for recycled I would assume what are the drivers that causes someone aside from the obvious consumer and brand awareness stuff, they cause someone to choose virgin versus recycled materials. So from our analysis, what we see is that the break even price for these recycled plastics are actually lower or

at parody with virgin with virgin plastics. So if you're an off taker, it's kind of in your interest to decrease your feedstock costs to kind of partner up and buy these recycled plastics. And because the recycling process uses waste plastics, it's kind of insulated from commodity price volatility because it's more decoupled from the price of crewed. Right, you're using waste plastic as you're as your input into your recycling system. So yeah, those would be the two

main drivers. You can decrease your plastics costs but at the same time avoid than the hedge for future volatility. Is there a market for this that everybody goes to or is it all done on a handshaken? And actually those those handshakes and those contracts are providing a barrier to more chemical recycling that has come up time and

time again. So when I've been speaking to small recyclers, they've told me that they are getting contracts with municipalities that are for like ten or twenty years, and the cities are trying to convince them to take thirty years because nobody wants to deal with waste. They just want to give it to someone and forget about it. The reason why that's a problem is because if you can't get hold of the feedstock reliably, so if you don't have a city that you're partnered with, what are you

going to do. It's a big problem for chemical recyclers in the developed world. Now what's really interesting is what happens in the developing world because everything we've seen about the plastic waste crisis, it's all coming from these rivers

um in the developing world. So the question is, if you're a chemical recycler, do you set up in the US where or the EU or there's policy to support, or do you go to a place like Thailand or India or the Philippines and do you either try to make that recycling feedstock infrastructure for collection yourself, do you go to the government and is that going to give you a more secure supply and there's potential there to do it in a very decentralized way because if you

have things like you know, small deposit scheme that the company is running itself, you're creating a price signal to you know, individual waste pickers to say, bring us your plastic bottles, will give you a couple of cents, and then they can put that into their profitable process and

come out with something that they can sell. Let's talk about MIDS and how they fit into this, because I think there is somewhat of a misconception among the general public regarding the fact that emissions and waste are actually two very different things, and while they do converge in this space, it would be great for you to talk about maybe the virgin feedstocks and the recycled feedstocks are

compared to one another from an emission standpoint. I think you have to think about what is the gold standard, because that's what people ask us a lot, is what should I do. Now we've done some calculations on l C A S. And if you think of a plastic bottle and you think about the carbon footprint of making a new plastic bottle, a recycled one is half that. But if you can then recycle that recycled bottle again and again and again, then you're shrinking the carbon footprint.

Now you also have to take into account the emissions of each individual process, and that's what il Han's note looks at. Yes, so mechanical recycling is less carbon intensive than chemical recycling, but recycling processes are still carbon emitting processes, right, They're not net zero. They still emit carbon and have

a carbon footprint. So even though by displacing virgin material, recycling can offer emissions reductions, at the end of the day, what really makes your industry decrease its total emissions is either reducing demand or finding more sustainable options like bioplastics

for example. We have this waste stream, though, and the alternative is incineration in some circumstances has its stack up compared to incineration much better because you're extending the lifetime of the material and you're at the same time you're obviously avoiding the embodied carbon in the product that is released into the atmosphere when you end up incinerating the plast And we ant be any after Nazi incineration as part of the circular economy, do we know, we definitely

we do not that is a kind of second life for plastic. It's it's definitely not circuling. This seems like chemical recycling is a pretty good option and and dare I say, it's even feeling a little bit like a silver bullet. So I want to know how much of the plastics waste stream can actually go into chemical recycling and can we feasibly get rid of everything and reuse it all? I think for the highest quality output, you still need sorting. If waste isn't being collected properly or

at all, then you still have a feedstock issue. And collection is an extremely decentralized problem to try and fix, whereas using a more sustainable material is completely within the remit of one company. They can make that decision themselves and control the whole thing. So in terms of silver bullets as a technology, maybe, um, but there's a much wider system around this that is difficult to conquer. You know, something that we we could talk about that we haven't

is the recycling capacity gap. So a lot of companies and a lot of countries have put targets in place, and pretty aggressive ones, you know, for completion. In they've said this is how much of our packaging or our waste that we want to recycle. And when we look at how much recycling capacity both mechanical and chemical in

the pipeline is there, it's not enough. And we show that gap in the note, and that's a pretty clear signal to a lot of these industries that they need to invest more, they need to build more, and we're just not seeing that yet. So to us, it's going to be a really interesting few years. Because you can build these plants fast, they're already profitable. It could be a very cool three four five years for recycling in general.

So the question might not be whether or not you set up in facility in Europe or the US, or you set it up in Asia. Maybe there's an opportunity everywhere. Exactly. Yeah, definitely. While on that note, I think that we should come back to this in a couple of years time and take a sense check. Are we going to continue to write research about recycling going forward? We're just getting started. Yes, Okay, I'm really happy to hear that. Uh. Julia Ilhan, thank

you so much for joining us today. Thanks Dana bloombergin e F is a service provided by Bloomberg Finance LP and its affiliates. This recording does not constitute, nor should it be construed, as investment advice, investment recommendations, or a recommendation as to an investment or other strategy. Bloomberguinnia should not be considered as information sufficient upon which to base

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