first, thank you for your detailed explanation, that helps it to understand the issue. Basically, I think PP recycling in your system is a multi-functional process: for one, it picks up unspecified plastics; second, it produces recycled PP. And for the undefined plastics, there is a first life cycle. In PEF (since you are using the PEF database) this first life cycle is addressed in the famous and often debated and not often well-explained CFF (circular footprint formula). If you want to consider this recycling and the new plastic production in your system, you can apply an allocation or the CFF. "Avoided waste" would also be possible but you should include some effort for the transportation and processing of waste plastic.
- the side of the avoided waste is a bit confusing in the model graph, I agree