Speaker 1: So I was out with my kids the other day
Speaker 1: when they spotted these granola bars that they love, probably
Speaker 1: because they have chocolate on them, they asked. I agreed,
Speaker 1: bought them from my kids. One of them dug right
Speaker 1: in and the other just stood there staring at the
Speaker 1: bar for several seconds. Noticing that my kid was particularly
Speaker 1: pensive over a granola bar, I asked him when he
Speaker 1: was thinking, and was pretty shocked to find that he
Speaker 1: was actually thinking about waste management. He turned to me
Speaker 1: and he said, Mom, I'm going to eat this granola
Speaker 1: bar and throw the wrapper in the trash. The trash
Speaker 1: will go to the landfill, but it might not stay there.
Speaker 1: It might fall into the ocean, and once in the ocean,
Speaker 1: it will break into tiny bits and get eaten by fish.
Speaker 1: Then I'll eat the fish. So I'm just thinking I
Speaker 1: might as well eat the granola bar with the rapper
Speaker 1: still on it and get it over with. My kid
Speaker 1: is seven, so I was pretty floored by this off
Speaker 1: the cuff life cycle analysis. But the truth is he
Speaker 1: might be right. That's one of the reasons why companies
Speaker 1: are looking in innovative ways of recycling today. On Bloomberg
Speaker 1: switched on, we speak with il Han Savut, who is
Speaker 1: a bienn f analyst focused on clean manufacturing and sustainable materials,
Speaker 1: joined by Julia Atwood, who leads our Advanced Materials team.
Speaker 1: They wrote a research note titled Chemical Recycling Technologies, Costs
Speaker 1: and Capacity, which bienny f subscribers can access on bienf
Speaker 1: dot com, on the benny of mobile app, or the
Speaker 1: Bloomberg terminal at biennyf Go. As a reminder, b any
Speaker 1: F does not provide investment or strategy advice, and you
Speaker 1: can hear our full disclaimer at the end of the show.
Speaker 1: I'm Dana Perkins and you're listening to Switch It on
Speaker 1: the bienf podcast. Hi il Han, Hi Julia, thank you
Speaker 1: for joining us today. Thanks for having us, Dana, thanks
Speaker 1: for having us. We are going to talk about chemical
Speaker 1: recycling today. And I must admit when I first looked
Speaker 1: at this research note, I was thinking of being in
Speaker 1: my chemistry class and I was thinking about, Oh, there's
Speaker 1: going to be these chemical molecules floating around, and surely
Speaker 1: somebody off in some obscure place needs to recycle those
Speaker 1: for their business need. And then I got into reading
Speaker 1: this note prepping for today and realized that actually we're
Speaker 1: talking about the real waste dream that you and I
Speaker 1: and everybody we know actually participates in. So let's start
Speaker 1: talking about chemical recycling. But let's rewind and talk about
Speaker 1: what is recycling and then how does chemical recycling fit
Speaker 1: into all of this. I think that's a great place
Speaker 1: to start, because there are a bunch of different types
Speaker 1: of plastics that I think we as consumers don't really appreciate,
Speaker 1: and currently most plastic waste is recycled mechanically, and mechanically
Speaker 1: recycling is a very simple process where you kind of
Speaker 1: just sort plastic. You shed it, wash it, melt it,
Speaker 1: and make new plastic. So I put in the bin
Speaker 1: and then at some plants somewhere they take it and
Speaker 1: kind of sorted out by type. Yeah, but because it's
Speaker 1: a simple process, it means that it has to be
Speaker 1: meticulously sorted, right, So you have to sort by grade
Speaker 1: and type. And I think a good analogy is so
Speaker 1: imagine that different colors of plato are different types of plastic, right,
Speaker 1: and if you're a recycler, you essentially receive a giant
Speaker 1: ball of play dough that has a bunch of different colors.
Speaker 1: Nobody likes plato that's all mixed together. That's the worst
Speaker 1: hate that, And what you have to do is separate
Speaker 1: the play dough by different types of colors, because you
Speaker 1: want high purity and high quality plastic output, recycled output
Speaker 1: that's of only one color. But what complicates it even
Speaker 1: more is that most plastics have a bunch of chemicals
Speaker 1: and additives that are added during production. So imagine that
Speaker 1: your play though also has glue and glitter and pieces
Speaker 1: of paper. So even if you manage to kind of
Speaker 1: separate it out by color, separated out by color, you
Speaker 1: have to then remove all this stuff that's in it.
Speaker 1: And with mechanically recycling, you essentially have a spoon to
Speaker 1: do all this is that the primary reason most things
Speaker 1: don't get recycled because it's some alarmingly low figure of
Speaker 1: things that go into the recycling bin don't actually make
Speaker 1: it out. I mean, what is it seven something like that,
Speaker 1: Depending on the country, Yeah, it really depends. In the
Speaker 1: EU they do much better. So for some plastics it's
Speaker 1: as much as but there can also be some funny accounting.
Speaker 1: Their incineration with energy recovery is sometimes considered recycling. One
Speaker 1: of the other issues is obviously collection right, you have
Speaker 1: to be able to recover the waste and get it back.
Speaker 1: But then a huge part of the problem is that
Speaker 1: sorting and decontaminating the plastic waste is so hard and
Speaker 1: so expensive, which makes it really hard for recyclists to
Speaker 1: kind of produce high quality, high purity recycled material. And
Speaker 1: when you don't have high purity and high grade recycled output,
Speaker 1: it kind of limits its applications and also is sold
Speaker 1: at a a discount. So the limited applications. For example, recycled
Speaker 1: plastic can't really be used in food packaging, which is
Speaker 1: a main application of flexible packaging for example. So those
Speaker 1: kinds of limitations really prevent the market from taking off.
Speaker 1: So what is chemical recycling as compared to mechanical recycling. So,
Speaker 1: chemical recycling is a pretty broad term that refers to
Speaker 1: these new recycling technologies that use some sort of chemical
Speaker 1: process to take waste plastic and make it into virgin
Speaker 1: quality material. And there are two types. One is monomer recycling,
Speaker 1: where you take a plastic and kind of go back
Speaker 1: to the base unit or the monomor, and the other
Speaker 1: is feedstock recycling, where you heat up the plastic waste
Speaker 1: to a high temperature in the absence of oxygen and
Speaker 1: go back to the original feedstock that was used to
Speaker 1: make the plastics. So we are back to my chemistry
Speaker 1: lab in high school. Now. Yeah, but we can also
Speaker 1: go back to the play though analogy. Okay, so in
Speaker 1: monomer recycling, you still have to sort the waste by
Speaker 1: type of plastic, so you're still sorting your play though
Speaker 1: by color, but you can leave some of the glue
Speaker 1: and the glitter and that stuff in it, so it
Speaker 1: has a higher contamination tolerance because you're chemically or thermally
Speaker 1: breaking down the plastic to its base unit, so that
Speaker 1: kind of gets rid of all the contaminants that mechanically
Speaker 1: recycling can't get rid of. This is mostly done for
Speaker 1: PT and polystyrene. In the case of feet stock recycling.
Speaker 1: There you have your play though, but you can basically
Speaker 1: have multiple colors in it and leave the stuff inside
Speaker 1: and then you pyrolyze or your feet soccer recycled the
Speaker 1: entire giant play doll ball and you get a play
Speaker 1: doball that has no color that can be made into
Speaker 1: any plastic in the recycling world. This sounds pretty fancy.
Speaker 1: Therefore expensive, is it an expensive process? It is. It's
Speaker 1: more expensive than mechanical recycling, but it is profitable. There
Speaker 1: are two main reasons why it is profitable. Is that
Speaker 1: your feet stock costs is extremely low because you're using
Speaker 1: waste plastic that's being incinerated or land filled. And the
Speaker 1: other is that because you're producing virgin quality material, you
Speaker 1: can sell at a high price, so you can get
Speaker 1: the price that virgin plastic is being said, theoretically, the
Speaker 1: chemically recycled products could be used for food in some circumstances,
Speaker 1: and then the feedstocks do they first go through mechanical
Speaker 1: recycling and then the chemical recycling gets what's left, or
Speaker 1: are these different recycling plants altogether that are buying the
Speaker 1: same waste material and then doing what they want with it.
Speaker 1: So it's still a pretty new markets, so we still
Speaker 1: don't know how the logistics will play out in terms
Speaker 1: of waste management and the waste management infrastructure and how
Speaker 1: they'll interact with these new types of recycling plants. But
Speaker 1: ideally what you would have is you would sort it
Speaker 1: out for mechanically recycling, because mechanic clearly recycling has a
Speaker 1: lower costs and has a lower carbon footprint, and then
Speaker 1: whatever you can mechanically recycle, you would chem and clear recycle.
Speaker 1: So let's go back into the economics and you're saying
Speaker 1: this is profitable. Do we have an idea of what
Speaker 1: these margins look like? So the margins are pretty big.
Speaker 1: They're double digits around for pyrolysis, a bit higher for
Speaker 1: e polymerization, so monumo recycling. So you're saying that it's
Speaker 1: the waste treatment facilities that are making money in this?
Speaker 1: Is that a highly fragmented market. Are these big companies
Speaker 1: or are they small companies that are part of our
Speaker 1: typical municipal waste collection. It's the recyclers that are making
Speaker 1: the money, which isn't necessarily the waste management facility, depends
Speaker 1: on how the supply chain is kind of set up,
Speaker 1: but it would be the recycling. But again it's a
Speaker 1: quite new market. And usually these new recyclers, which are startups,
Speaker 1: are partnering with big corporate names, either brand owners or
Speaker 1: chemicals companies, so it's probably a bit of profit sharing. Okay,
Speaker 1: who are the brand owners that are getting involved? Really
Speaker 1: interesting thing is that there are so many very different
Speaker 1: and very disparate companies that are getting involved in this.
Speaker 1: Because the technology is held by really small startups. You're
Speaker 1: not seeing the huge recycling companies that we would think
Speaker 1: of like Veolia or Waste Management who are investing in this.
Speaker 1: It's much more people like Coca Cola who really care
Speaker 1: about what happens to their waste because that's important to
Speaker 1: their consumers. So Coca Cola, together with PepsiCo and Corrig
Speaker 1: Dr Pepper putting a hundred million into recycling. And then
Speaker 1: you have the chemicals companies that have a massive stake
Speaker 1: in this because they make these plastics, like Indo Rama
Speaker 1: they've put one point five billion into recycling over five years.
Speaker 1: And then you also have the oil companies who are
Speaker 1: starting to worry about whether or not they're going to
Speaker 1: be able to sell what they've been selling for a
Speaker 1: hundred years. So you have people like BP who have
Speaker 1: actually invested in house and are going to build a
Speaker 1: twenty five million pilot plant as a chemical recycler. So
Speaker 1: there is money in this market, but it's not going
Speaker 1: to the traditional waste management sources. Yeah, like the partnerships
Speaker 1: I think can be put into two. You have the
Speaker 1: brand owners that are mostly involved with PT recycling just
Speaker 1: because it's a very visible plastic product. That they use.
Speaker 1: For example, Coca Cola has made a very public commitment
Speaker 1: about using hundred percent recycled pt by so in order
Speaker 1: to kind of meet those targets, they really have to
Speaker 1: make sure that these technologies are commercialized and can produced
Speaker 1: a scale. On the other hand, for pyrolysis and police
Speaker 1: starting depolymization, you have more chemical companies, as Julia mentioned,
Speaker 1: being involved because they're they're both scared of policy risk,
Speaker 1: but at the same time they can also see fall
Speaker 1: in their feedstock costs if they buy these recycled based chemicals.
Speaker 1: Let's talk a little bit about the feedstocks that are
Speaker 1: you know, this waste that goes into it, and I
Speaker 1: think it was the movie The Graduate where they set
Speaker 1: the futurist plastics and we're definitely seeing that. So I
Speaker 1: think you guys point out in the note that the
Speaker 1: production of the six major plastics that reason for most
Speaker 1: of the stuff we we interact with has actually doubled
Speaker 1: since two thousand, so the last twenty years twice as
Speaker 1: much plastic and we're seeing that actually being a pretty
Speaker 1: big growth area going into the future. So there's space
Speaker 1: for virgin feedstock, but then there's a lot of space
Speaker 1: for recycled I would assume what are the drivers that
Speaker 1: causes someone aside from the obvious consumer and brand awareness stuff,
Speaker 1: they cause someone to choose virgin versus recycled materials. So
Speaker 1: from our analysis, what we see is that the break
Speaker 1: even price for these recycled plastics are actually lower or
Speaker 1: at parody with virgin with virgin plastics. So if you're
Speaker 1: an off taker, it's kind of in your interest to
Speaker 1: decrease your feedstock costs to kind of partner up and
Speaker 1: buy these recycled plastics. And because the recycling process uses
Speaker 1: waste plastics, it's kind of insulated from commodity price volatility
Speaker 1: because it's more decoupled from the price of crewed. Right,
Speaker 1: you're using waste plastic as you're as your input into
Speaker 1: your recycling system. So yeah, those would be the two
Speaker 1: main drivers. You can decrease your plastics costs but at
Speaker 1: the same time avoid than the hedge for future volatility.
Speaker 1: Is there a market for this that everybody goes to
Speaker 1: or is it all done on a handshaken? And actually
Speaker 1: those those handshakes and those contracts are providing a barrier
Speaker 1: to more chemical recycling that has come up time and
Speaker 1: time again. So when I've been speaking to small recyclers,
Speaker 1: they've told me that they are getting contracts with municipalities
Speaker 1: that are for like ten or twenty years, and the
Speaker 1: cities are trying to convince them to take thirty years
Speaker 1: because nobody wants to deal with waste. They just want
Speaker 1: to give it to someone and forget about it. The
Speaker 1: reason why that's a problem is because if you can't
Speaker 1: get hold of the feedstock reliably, so if you don't
Speaker 1: have a city that you're partnered with, what are you
Speaker 1: going to do. It's a big problem for chemical recyclers
Speaker 1: in the developed world. Now what's really interesting is what
Speaker 1: happens in the developing world because everything we've seen about
Speaker 1: the plastic waste crisis, it's all coming from these rivers
Speaker 1: um in the developing world. So the question is, if
Speaker 1: you're a chemical recycler, do you set up in the
Speaker 1: US where or the EU or there's policy to support,
Speaker 1: or do you go to a place like Thailand or
Speaker 1: India or the Philippines and do you either try to
Speaker 1: make that recycling feedstock infrastructure for collection yourself, do you
Speaker 1: go to the government and is that going to give
Speaker 1: you a more secure supply and there's potential there to
Speaker 1: do it in a very decentralized way because if you
Speaker 1: have things like you know, small deposit scheme that the
Speaker 1: company is running itself, you're creating a price signal to
Speaker 1: you know, individual waste pickers to say, bring us your
Speaker 1: plastic bottles, will give you a couple of cents, and
Speaker 1: then they can put that into their profitable process and
Speaker 1: come out with something that they can sell. Let's talk
Speaker 1: about MIDS and how they fit into this, because I
Speaker 1: think there is somewhat of a misconception among the general
Speaker 1: public regarding the fact that emissions and waste are actually
Speaker 1: two very different things, and while they do converge in
Speaker 1: this space, it would be great for you to talk
Speaker 1: about maybe the virgin feedstocks and the recycled feedstocks are
Speaker 1: compared to one another from an emission standpoint. I think
Speaker 1: you have to think about what is the gold standard,
Speaker 1: because that's what people ask us a lot, is what
Speaker 1: should I do. Now we've done some calculations on l
Speaker 1: C A S. And if you think of a plastic
Speaker 1: bottle and you think about the carbon footprint of making
Speaker 1: a new plastic bottle, a recycled one is half that.
Speaker 1: But if you can then recycle that recycled bottle again
Speaker 1: and again and again, then you're shrinking the carbon footprint.
Speaker 1: Now you also have to take into account the emissions
Speaker 1: of each individual process, and that's what il Han's note
Speaker 1: looks at. Yes, so mechanical recycling is less carbon intensive
Speaker 1: than chemical recycling, but recycling processes are still carbon emitting processes, right,
Speaker 1: They're not net zero. They still emit carbon and have
Speaker 1: a carbon footprint. So even though by displacing virgin material,
Speaker 1: recycling can offer emissions reductions, at the end of the day,
Speaker 1: what really makes your industry decrease its total emissions is
Speaker 1: either reducing demand or finding more sustainable options like bioplastics
Speaker 1: for example. We have this waste stream, though, and the
Speaker 1: alternative is incineration in some circumstances has its stack up
Speaker 1: compared to incineration much better because you're extending the lifetime
Speaker 1: of the material and you're at the same time you're
Speaker 1: obviously avoiding the embodied carbon in the product that is
Speaker 1: released into the atmosphere when you end up incinerating the
Speaker 1: plast And we ant be any after Nazi incineration as
Speaker 1: part of the circular economy, do we know, we definitely
Speaker 1: we do not that is a kind of second life
Speaker 1: for plastic. It's it's definitely not circuling. This seems like
Speaker 1: chemical recycling is a pretty good option and and dare
Speaker 1: I say, it's even feeling a little bit like a
Speaker 1: silver bullet. So I want to know how much of
Speaker 1: the plastics waste stream can actually go into chemical recycling
Speaker 1: and can we feasibly get rid of everything and reuse
Speaker 1: it all? I think for the highest quality output, you
Speaker 1: still need sorting. If waste isn't being collected properly or
Speaker 1: at all, then you still have a feedstock issue. And
Speaker 1: collection is an extremely decentralized problem to try and fix,
Speaker 1: whereas using a more sustainable material is completely within the
Speaker 1: remit of one company. They can make that decision themselves
Speaker 1: and control the whole thing. So in terms of silver
Speaker 1: bullets as a technology, maybe, um, but there's a much
Speaker 1: wider system around this that is difficult to conquer. You know,
Speaker 1: something that we we could talk about that we haven't
Speaker 1: is the recycling capacity gap. So a lot of companies
Speaker 1: and a lot of countries have put targets in place,
Speaker 1: and pretty aggressive ones, you know, for completion. In they've
Speaker 1: said this is how much of our packaging or our
Speaker 1: waste that we want to recycle. And when we look
Speaker 1: at how much recycling capacity both mechanical and chemical in
Speaker 1: the pipeline is there, it's not enough. And we show
Speaker 1: that gap in the note, and that's a pretty clear
Speaker 1: signal to a lot of these industries that they need
Speaker 1: to invest more, they need to build more, and we're
Speaker 1: just not seeing that yet. So to us, it's going
Speaker 1: to be a really interesting few years. Because you can
Speaker 1: build these plants fast, they're already profitable. It could be
Speaker 1: a very cool three four five years for recycling in general.
Speaker 1: So the question might not be whether or not you
Speaker 1: set up in facility in Europe or the US, or
Speaker 1: you set it up in Asia. Maybe there's an opportunity everywhere. Exactly. Yeah, definitely.
Speaker 1: While on that note, I think that we should come
Speaker 1: back to this in a couple of years time and
Speaker 1: take a sense check. Are we going to continue to
Speaker 1: write research about recycling going forward? We're just getting started. Yes, Okay,
Speaker 1: I'm really happy to hear that. Uh. Julia Ilhan, thank
Speaker 1: you so much for joining us today. Thanks Dana bloombergin
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