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July 1, 2008

6 Min Read
Executive Q&A with Phil Howerton

Custom Polymers Inc. has grown from a regionally focused, single-site plastics recycler in Charlotte, NC, to become one of the largest plastics recyclers in North America. The company now sells approximately 20 million pounds each month of recycled post-industrial and post-consumer plastics, and expects another year of record growth with projected gross revenues of $80 million (including affiliate companies). More on the company at www.custompolymers.com.

Phil Howerton was an experienced plastics profile processor when mutual friends introduced him to John Calhoun, who had a finance and banking background. Together in 1996 they founded Custom Polymers Inc. Twelve years later, the company is one of the largest plastic recyclers in the United States.

MPW: Where does most of your material now come from—industrial scrap or post-consumer scrap?

Howerton: Historically, we did mostly post-industrial. In the last four to five years, we’ve gotten more involved in post-consumer. Now the split is about 60/40 or 70/30, still mostly post-industrial. We chose to go in that direction [increased post-consumer recycling]; in 2004 we bought a majority interest in Blue Ridge Plastics, which specializes in recycling of post-consumer PE and PP material. Then in 2005 we bought most of Spenaco Inc., a PET recycler in Alabama.

MPW: With regard to sustainability and the increasingly hard look at recyclability of materials, do plastics recyclers have the lobby strength to push for legislation promoting collection of post-consumer scrap?

Howerton: There are several trade organizations such as APR (Assoc. of Post Consumer Plastic Recyclers), which we support financially and are actively involved in, that are playing a larger role in developing policy and affecting legislative activities. There is also so much awareness in the community these days of the need for recycling and sustainability and this also helps greatly in influencing policy makers. Also, our products are petroleum based and the current oil and energy environment will put even more pressure on the need to recycle.

However, the high transportation costs we are now experiencing are a major challenge for recyclers and will put pressure on the viability of recycling some materials. The industry needs legislative help in order to continue to grow the amount of plastic that is reclaimed.

Everyone wants to recycle until it starts to cost them money, then they begin to lose some of their enthusiasm. Government is no different.

MPW: If I were a processor, what would be your argument to have your firm collect and process my scrap, as opposed to doing it myself?

Howerton: There are arguments for both sides. If you manufacture waste that you cannot use, as it could jeopardize product quality, then of course you want someone like us to take it off your hands.

MPW: In Mexico you even do toll compounding and processing. How did that occur?

Howerton: Yes, we’ve five extrusion lines there, and about 100 employees. We started in Mexico in 1998, and imported most of the material [obtained there] to our Houston facility in the U.S. Now, the Mexican plastics industry consumes the vast majority—95% or so—of what we recycle there. Customers there asked us to enter compounding, so in 2000 we bought a 50% stake in Grupo Mafer. This also helped us diversify our business a bit.

MPW: What separates your business from other recyclers?

Howerton: Our niche is that we have a global network so we can get better prices for recyclate, as compared to being only a regional player. Right now, the [U.S.] dollar is soft, so our export business is strong. We ship about 35% of our recyclate overseas. We opened a sales office in Hong Kong two years ago to take advantage of growth in that there. We also maintain inventories around the world.

MPW: How did you get started in plastics recycling?

Howerton: I worked at a custom profile extrusion processor, and as we started to process recyclate I saw that the recycling business could be improved upon, so eventually I started the business with John Calhoun. Eric Targart joined us in 1999 as another owner.

MPW: How has the market changed in the past few years?

Howerton: There is a definite trend to holding folks accountable for the waste bags. I think the legislation is good because it focuses everyone (on limiting waste). From a consumer standpoint, there is a much greater emphasis on recycling.

MPW: How severe are the limitations on where you can market your material?

Howerton: There are still some industries that cannot use recyclate—medical is the most notable—but there are less and less each day. It’s not like it used to be, as the quality of the recyclate has risen so much. The hardest part for us is sourcing good scrap.

MPW: Can you give us an example of where recyclate is seeing greater use?

Howerton: The polyethylene business [the recovery of post-consumer polyethylene] has become much more efficient than it used to be. Companies are developing more applications where they can use more R-PE, so there is increased demand, which leads to even more applications with R-PE, and so on.

MPW: How has pricing of plastics recyclate tracked virgin material pricing?

Howerton: There isn’t always a linear relationship between virgin and recyclate. For example, PVC [virgin material pricing] has trended higher the past 18 months. But the value of the recyclate is decreasing as the demand just isn’t there, mostly due to the drop in the building and construction industry.

An opposite example is PET, which has a pretty linear relationship. Demand is strong for PET recyclate, which serves to make the recyclate more valuable. The recovery rate for PET in the U.S. is about 25% now, post-consumer recovery.

MPW: Suppliers of virgin resin have been raising their prices in step with the rise in costs for oil and other precursors or feedstock materials. How has the leap in oil prices affected your business?

Howerton: I would prefer to see oil at a lower price. The cost of transportation is so high that some of the lower-cost recyclate doesn’t even get recycled any more.

That ties in with the hardest part of our business: sourcing good scrap. We need to be able to economically source and truck the material.

MPW: Do you see any aspect of Custom Polymers that you want to change to prepare for the future?

Howerton: We are very comfortable at this time with our current structure. We have an appropriate mix of domestic and international business, in both supply chain and customer base, which allows us to take advantage of the rapidly changing market conditions we are now experiencing. This blend allows us to efficiently capitalize on currency fluctuations, regional spikes and dips in raw material value, and to mitigate the increasingly prohibitive cost of transportation.

We foresee future growth in two directions: increasing our international presence, primarily in Europe and Asia; and vertical growth domestically with additional manufacturing capabilities to increase the value of the products we sell.

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