We maintain that circular business models can prove just as profitable as linear models for companies in a diverse array of industries. Mining is no exception. To be sure, metals and minerals have been circular for a long time, including being supported by separated-waste collection for many materials. Much packaging, though, is still intended for single-use only—which misses the circular-economy mark. Of course, with some packaging, different options are available. Take beverage containers. Producers and consumers can choose from diverse alternatives—including refillable bottles and containers made from recycled materials (aluminium, glass, plastics).
However, recycling of non-metals—especially for plastic packaging materials such as polypropylene (PP) and polystyrene (PS)—comes with challenges. Even for polyethylene terephthalate (PET), making a strong business case for recycling can be challenging. That reality, combined with a growing backlash against plastics, could make the production of aluminium containers more competitive in the drive to support circular-economy practices.
Spotlight on PET recycling challenges
Recycling of bottles and other packaging that uses PET typically requires separate systems aimed at incentivising reuse of the packaging. Otherwise, the costs involved in reuse under current regulatory frameworks are often unfavourable for bottle makers. Take deposit-refund systems for bottles, including container collection and bottle bills. Through such schemes, a small deposit is added to the price of beverages in stores and refunded to consumers when they return bottles. Such systems aim to give consumers a financial incentive to recycle their containers, which usually vastly improves collection and recycling rates.
Unfortunately, these systems pose a challenge for PET bottles. That's because the schemes' operating cost is only partially recovered by market prices for PET. In some places, PET subsidies are currently funded by government agencies, in part from unredeemed deposits. Availability of recycled PET determines whether bottle makers can make a business case for using recyclable materials. But market supply of recycled PET often relies on incentive schemes like deposit-refund systems that provide clean waste streams.
Even though consumers and governments have been pushing for more deposit-refund schemes, regulations regarding such schemes can vary considerably across locations. In regions where recycling is mandated or incentivised, bottle containers see a fairly high recycling rate; for example, 90% across most European systems. In North America, however, only 30% of used PET bottles are collected for recycling each year—much lower than the roughly 50% consumer recycling rate for aluminium cans. Thus, as much as one-third of the material that's collected cannot be recovered. In the United States alone, only 10 states have PET-bottle deposit systems or plastic-bottle regulations, and just 2 states have mandatory plastic recycling or reuse programs only (figure 1, below). Other plastic packaging materials (such as PS containers) pose an even greater challenge, because variance (such as different colours) lowers their quality and makes it difficult to cleanly separate them.
Exploring new alternatives
Under mounting pressure from sustainability-minded interest groups and consumers, more consumer packaged goods (CPG) companies are taking action. Some are setting up their own bottle-return systems. Others are committing to using more recycled materials in the packaging content for their products, thus stimulating demand and boosting value for the recycled material.
Perhaps most telling, some CPG companies are investing in businesses that specialise in PET recycling, through processes including chemical recycling and use of enzymes to ‘bio-recycle' plastic. While the promise of chemical recycling has been around for decades, the high costs associated with it, along with a lack of demand, have made this process financially unviable. That could change if the intensifying backlash against plastic prompts companies to place more bets on this technology.
Some forward-thinking CPG companies have also begun experimenting with the so-called Loop project, led by waste-management company TerraCycle. The Loop offers consumers a new way to shop. Consumers can select from about 300 items made by different brands (from detergent and shampoo to ice cream and mouthwash) that have reusable packaging—including aluminium containers—delivered in one box to their doorstep. A service then picks up the containers, cleans and refills them, and ships them out to consumers again.
Implications for aluminium producers
What does all this mean for aluminium producers? For one thing, if pressure on CPG companies to step up their sustainability efforts increases, current constraints on financial viability in deposit-refund systems for PET bottles could make aluminium cans more competitive as a recyclable form of packaging. International dynamics could also play a role. For instance, with China no longer accepting low-grade plastics for recycling, and with new interest from the canning industry in serving plastic-leery CPG companies, demand for aluminium could rise.
While aluminium is highly energy intensive in primary production, beverage cans made from this material get recycled in most places around the world, owing to its scrap value, reaching upwards of 95% in Brazil and 75% in Europe. Clearly, such recycling can work—if a raw material's residual value is high enough. An industry can evolve around such recycling, but only if the various players approach the process effectively. For CPG companies, that means taking consumers' preferences into account—such as finding innovative ways to address reusability for aluminium beverage containers and matching the convenience to consumers provided by PET bottles.
Of course, total emissions must be considered in assessing any scenario. But some markets are shifting, further suggesting possible increases in demand for recycled aluminium. For instance, in Denmark and Germany, some water brands are now using cans as packaging—unthinkable several years ago. Indeed, a recent joint study from WBCSD and BCG shows that innovative raw materials buyers are taking steps to support the circular economy throughout the value cycle (figure 2, below).
As they've done with PET recycling businesses, CPG companies may partner with or invest in enterprises specialising in aluminium scrap recycling. Meanwhile, for aluminium producers, navigating changes in demand for new versus recycled aluminium will prove vital. How can such producers best proceed? We recommend several strategies centred on supporting and, even better, participating in circular-economy practices. A few examples:
• Get into the secondary-metals game. Supply of recycled aluminium is increasing, thanks to growth in a global market focused on recycling waste from consumer-electronics products. So consider becoming part of the circle yourself; for instance, by acquiring secondary-metals businesses.
• Help customers reduce their emissions footprint. Distinguish yourself from competitors by delivering ‘low-carbon' aluminium products that help your buyers minimise their own emissions footprint. You may even command price premiums for these offerings.
• Innovate with customers and others in your business ecosystem. Look for ways to partner with CPG companies and government agencies that are interested in developing and commercialising new production processes that avoid extensive CO2 emissions.
As the global dialogue around sustainability accelerates, there's good news. Historically, the aluminium industry has been the first and most successful in ensuring reuse and circularity. To sustain success in this area, aluminium producers can broaden their view of both the challenges and opportunities facing them. We believe they can look beyond beverage packaging to uncover opportunities catalysed by changes in consumer demand as well as advances in production technologies.
*Karthik Valluru (Valluru.Karthik@bcg.com) is a managing director and partner at Boston Consulting Group; Alexander Meyer zum Felde (Meyer.zum.Felde.Alexander@bcg.com) is an associate director for sustainability and circular economy at BCG; Felix Stellmaszek (Stellmaszek.Felix@bcg.com) is a managing director and senior partner at BCG; Cate Blankenship (Blankenship.Cate@bcg.com) is a project leader at BCG; Stephen Amery (Amery.Stephen@bcg.co) is a lead knowledge analyst at BCG. The authors would like to thank Konrad von Szczepanski , a managing director and partner at BCG, for his input.