Pet supply

Leon Farahnik is back, with a bullish view on the markets

A digital rendering of the planned installation of Circularix | Courtesy of Circularix

The former head of bankrupt recycler CarbonLite is launching another company, betting that prices for virgin and RPET will continue to decouple as brands seek out recycled plastic.

Leon Farahnik’s management company, HPC Industries, recently teamed up with global financial services firm Macquarie Group to launch a PET recycling joint venture called Circularix, which plans to open its first plant at the end of this year. in Pennsylvania.

Farahnik was previously CEO of CarbonLite, which was the nation’s largest PET collector before him. filed for bankruptcy and closed early 2021.

In an interview with Plastics Recycling Update, Farahnik described what he sees as a rapidly changing market. He also explained how Circularix will fill a slightly different role in the supply chain than CarbonLite.

“There has been a total disconnect between virgin and post-consumer [prices],” he said. “So there’s no more pressure to compete with pristine material.”

Aggressive growth plans

Macquarie Group is an Australia-based financial services company, and it provides both equity and debt financing to Circularix through its Commodities and Global Markets group, Farahnik said. Macquarie also provides currency hedging and other risk management services.

Farahnik is President and CEO of Circularix. The president and chief operating officer is Alex Delnik, who was previously CEO and founder of PET recycling company Verdeco Recycling. After the sale of Verdeco, Delnik assumed the role of COO of CarbonLite.

Circularix plans to open its first factory, in Hatfield, Pennsylvania, by December 2022. After that, it aims to open four more facilities, according to Farahnik, with sites planned in Arizona, Florida, Texas and the Pacific Northwest.

Farahnik declined to disclose the estimated cost of each of the company’s factories.

Circularix is ​​targeting total production capacity at the five facilities of 275 million pounds of RPET pellets per year, according to a Press release.

The joint venture comes just over a year after CarbonLite filed for Chapter 11 bankruptcy, hoping to reorganize and continue operating. When that failed, a court approved the auctions of its three PET recycling plants.

The Sterling Group, an investment company that owns a PET recycling business Evergreen, bought the plant in Riverside, California. Indorama Ventures, the world’s largest producer of PET, bought the Dallas, Texas plant and DAK Americas, the plastics production arm of Mexican chemical company Alpek, bought the plant in Reading, Pennsylvania.

Another CarbonLite company, recycled content PET thermoform producer Pinnpack, was bought by a former Pinnpack executive and CarbonLite board member.

After the auctions, an official committee of unsecured creditors sought to investigate Farahnik and other former executives asking the court to compel them to hand over documents and submit to oral interviews. The committee alleged financial mismanagement and adversarial decision-making, allegations which Farahnik disputed. In September 2021, the judge suspended the committee’s request for an investigation.

In the recent interview, Farahnik said he would not comment on legal matters.

Plastics Recycling Update received no response to multiple emails sent to lawyers who represented the committee seeking information on the status of any investigation.

Different niche, different market conditions

In looking to set up his new venture, Farahnik said he met with a number of venture capital groups and banks. This included Macquarie, which is already an investor in a number of US recycling companies, including California recycling companies. GreenWaste and Zanker Recyclingbased in illinois waste treatment and recycling company LRSand others.

“I liked their approach and knowledge of the recycling industry,” said Farahnik. “They have done a very good job with investments in [materials recovery facilities] and in recycling, so I felt that they would understand the business much better than other banking groups.

CarbonLite brought in bales of post-consumer PET, which it shredded, washed and pelletized. But Circularix plans to buy only washed PET flakes, which it will decontaminate, extrude and pelletize using lines supplied by Starlinger Group, Farahnik said.

But like CarbonLite, Circularix’s customers will include major beverage brands.

Farahnik pointed to a few key reasons for CarbonLite’s closure: brands’ reluctance to pay the prices collectors have to charge for RPET and the issues COVID-19 has caused with the opening of the Reading, Kenya, plant. Pennsylvania, which was due to start-right as the coronavirus hits North America.

Since then, California, Washington, and New Jersey have passed or signed bills mandating minimum PCR content mandates, brand executives pledge to use PCR, and more shareholders are demanding that measures are taken by companies to reduce greenhouse gas emissions, Farahnik said. . Due to the demand for RPET, he sees a decoupling of virgin plastic and RPET prices, where falling virgin plastic prices do not necessarily have the same downward pressure on recycled resin prices as before. .

He stressed the importance of buyers paying enough for RPET to ensure waste pickers stay in business.

“Making sure recyclers like me – not just me, all recyclers – make money so they can expand facilities and help the industry achieve its goals is critical,” he said. he declares. “Without profits…it’s a no-win situation for both parties.”

Increase recycling rates to increase supply

The United States has an ample supply of washed PET flakes available for Circularix, Farahnik said, noting that US collectors today have an aggregate capacity of 1.4 billion pounds. Much of that goes into textiles, but beverage brands are pushing to make sure plastic goes back into bottles, and material recovery facilities are getting the message, he said.

He said Circularix had enough supply agreements in place to supply its five planned factories.

He added that he saw no competition with existing PET collectors. This also goes for DAK Americas, which operates the former CarbonLite factory just a few dozen miles from where the first Circularix factory will open in Pennsylvania.

“It’s really not a competition,” he said. “It’s more about having more uptime so brands can meet their hardware post-consumer usage goals.”

He said deposit programs and the use of reverse vending machines (RVMs) outside stores in deposit-free states are keys to boosting supply. Retailers should provide financial incentive in the form of coupons or other strategies to entice people to return containers to RVMs.

These strategies could push the recycling rate of PET bottles to 50% or more, which could allow RPET prices to come down and become more competitive with virgin plastic, he said.

“It really is the formula for success,” he said.

That being said, he believes there is already enough supply of RPET available for brands to meet their mandatory targets in California. Under state law, beverage brands are expected to have 15% RPC by 2022. Data released by the California Department of Resources Recycling and Recovery (CalRecycle) have shown that, in 2021, some beverage brands were well on their way to meeting their requirements, while others were off track. Niagara Bottling, a private label bottled water producer that purchased RPET from CarbonLite, saw a huge year-over-year drop in PCR usage. Farahnik said the RPET was available, but no one was able to sell it to Niagara at a price Niagara was willing to pay.

“There is enough post-consumer material to [brands] to reach their 15% set by California,” he said. “They just don’t want to pay the price.”

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