GREAT HAUL of CHINA

Randy Woods

AFTER BEING HAMPERED by 50 years of Communist economic policies, China's population of more than 1 billion consumers is finally beginning to assert its influence on world markets, recycling included. As cities modernize, the country is increasing demand for metals, wood, paper and electronics. In fact, the insatiable Asian demand for secondary materials has pushed export prices through the roof. Materials such as steel, scrap iron, copper, aluminum, lead, nickel, zinc, old corrugated containers (OCC) and various grades of scrap paper have posted record or near-historic highs in the past six to 12 months.

Robert J. Garino, director of commodities for the Institute of Scrap Recycling Industries (ISRI), Washington, D.C., predicts these trends will continue for the rest of the year. Throughout 2004, the gross domestic product for China is projected to grow by 9.5 percent. China's appetite for recovered metals has been growing by about 20 percent each year since 2001, while it's capacity to process OCC and mixed paper should increase by 3.5 million metric tons in 2004 as more processing facilities come on line, he says.

On the flip side, however, Chinese demand has created a drain on domestic recycling operations. “Exports are really giving certain markets a hard time,” says Mary Ann Remolador, program manager for the Northeast Recycling Council in Brattleboro, Vt. “China surprised a lot of people. Paper and plastic exports are taking away a lot of the feedstock.”

“There's a giant sucking sound right now, and it's all going to Asia,” agrees Robin Ingenthron, president of American Retroworks, a Vermont electronic equipment recycler. “Recycling's not pretty over there, but it's a lot better than mining for virgin materials.”

Moreover, demand in China is not expected to slow anytime soon. “I've been in the recovery business since 1987, and I've never seen the metals market so strong,” says Tom Kacandes, vice president for business development with Taylor Recycling, a construction and demolition (C&D) debris processor in Montgomery, N.Y. “It might end up being just an extended bubble. It's like in the 1990s, when corrugated was so hot. Buyers started piling orders on top of orders. That might be sustained over a two-year period, but not forever.”

The real force behind the transformation of China is as much cultural as it is economic, says Kevin W. Stearman, president and CEO of paper recycler Office Paper Systems, Gaithersburg, Md. “The population in China is getting more ‘Americanized,’ using more paper products such as tissue. The long-term effects from China are not going away.

“I see a correction coming, not a bubble bursting,” Stearman continues. “Prices increase and decrease due to the cyclical nature of the business. The Chinese are accepting more recycled fiber now because they've invested a tremendous amount in new mills to handle it. U.S. mills will just have to keep the prices up there with them.”

Heavy on Metals

Nowhere has China's effect been more pronounced than in the metal recovery industry. Copper concentrates, refined metal and scrap are all expected to see higher London Metals Exchange (LME) cash averages throughout 2004, as demand from Asian markets outstrip worldwide production, Garino says.

The LME price for aluminum should reach 68 to 76 cents per pound; the 2003 average was 65 cents, ISRI notes, with China accounting for 20 percent of global consumption and production. A U.S. International Trade Commission report found that copper scrap exports increased to a record 688,978 metric tons in 2003, up 35 percent from 2002, with more than 70 percent of that figure going to China. This year, ISRI reports that copper shortages will be even more acute and will perhaps drive prices up to more than $1 per pound.

Iron and steel also had a record year in 2003, producing 962.5 million metric tons, a 7 percent increase from 2002. China set the pace, but the U.S. steel market also is showing signs of growth, Garino says, with ferrous scrap prices approaching $200 per ton.

“Steel markets can only go down right now,” says Bill Heenan, president of the Steel Recycling Institute, Pittsburgh. “Not too long ago, the price was around $140 per ton to $150 a ton, but now it's never been higher. The scrap price is almost a penny per can. This trend will hold for a while, but will probably settle back a bit later in the year.”

The pricing boom for steel is a result of what Heenan calls a “perfect storm” of three economic factors converging at the right time: a weak U.S. dollar, a modernization binge in Asia and an improved world economy. “In China, they're moving from building clay houses to steel office buildings,” he says. “Every commercial building in the United States and abroad is using steel studs.”

Although electronic components represent only a tiny fraction of the waste stream, they are becoming more attractive to Chinese recyclers because of their copper, gold, aluminum and steel content, says American Retroworks' Ingenthron. Although exact numbers are difficult to find, he estimates that as many as 1,000 40-foot containers full of computer monitors are sent to Asian markets each week.

The problem, Ingenthron says, is that many old computer cathode ray tubes (CRTs) contain toxic elements, such as lead, and are not properly processed when they are exported. Some unscrupulous U.S. recyclers are taking advantage of the Asian demand by hiding old CRTs and televisions in bales of scrap metal to avoid disposal costs. “We try to carefully look at each purchase order for export,” he says. “When they offer you $7 for a used monitor, there's clearly not $7 worth of copper to be found, so they're obviously looking for other parts for repair or reuse, which is a good thing.”

Getting Enough Fiber?

Like metals, various grades of recovered paper on the domestic market are finding more end-uses in Asia, and export prices continue to soar accordingly. The domestic market has been flat, but some U.S. mills are raising prices to compete with offshore orders. While China is adding paperboard processing capacity, demand has been increased even further due to several production cuts in the past couple of years from North American mills.

According to a Resource Information Systems Inc. (RISI) report, OCC will average about $100 per ton in 2004. If the market continues to improve both domestically and abroad, the price could reach as high as $120 per ton to $150 per ton. With the improved economic conditions in both the United States and China, RISI predicts that world recycled paper use could grow by 16 million metric tons in 2004.

Mixed paper demand also is increasing, with prices approaching those of OCC. Rich von Stetton, manager of recycling for the Dover-based Delaware Solid Waste Authority (DSWA), says that white office paper in his region is selling for $125 per ton and may continue to rise. Junk and third-class mail is going to Marcal in New Jersey for $45 per ton to be recycled into paper towels, he says.

According to Stearman at Office Paper Systems, the lure from the Chinese market is irresistible to recyclers who are used to razor-thin margins and price fluctuations of only $5 per ton to $10 per ton from U.S. mills. In February, for example, domestic prices for OCC were about $70 per ton, but the Chinese market offered $110 per ton.

“Some of the mills ask, ‘Where's the loyalty?’” Stearman says. “Most recyclers will answer, ‘To hell with loyalty.’ We say loyalty is where the money is. How can you say no to $40 margins?”

Although such price spikes of the foreign market are welcome for recyclers, “they go down even faster than they go up,” Stearman says. “The price increases or decreases sometimes on a weekly basis. It can be great for processors, but it's hard on the mills. It doesn't give the market any time to react.”

For plastics recycling, China is “not just a huge story, it's the only story,” says Mike Schedler, president of the National Association for PET Container Resources (NAPCOR), Charlotte, N.C. “China has taken away most of the feedstocks. The industry is in desperate need of raw materials.”

DSWA's von Stetton accepts plastic grades Nos. 1-7 and gets approximately 8.5 cents a pound for mixed plastic, which is baled and sent to markets in North Carolina. “It used to be just 2 cents not too long ago,” he adds.

Unlike the paper and steel industries, post-consumer plastics don't affect virgin prices much, so little is being done to address the severe shortage, Schedler says. Since the end of 2002, he says, the Chinese simply have been able to compete for secondary materials better than domestic recyclers. “I haven't even seen a serious forum to discuss ways to address it,” he laments. “Doing nothing will only hurt us.”

The plastics industry may be starved for material, especially high-density polyethylene (HDPE), but Michael Alexander, senior research associate for the National Recycling Coalition (NRC), Washington, D.C., is optimistic about the increasing stability of domestic markets that still exist. Plastic lumber, he says, has had a history of volatility, but it is an expanding market for Nos. 1-7 plastics and is becoming more stable.

Newer sorting technology also has helped many recyclers to produce more value-added plastic streams. “We're seeing a new wave of leading-edge technology at the point of collection,” Alexander says. “Some muni-MRFs [municipal materials recycling facilities] are putting in optical scanning equipment, air classifiers, screens and a lot more automation. Based on the new sorting technologies, it's a fairly exciting time for plastics.”

Cost Avoidance

Of course, some U.S. markets are being driven by non-Asian factors, such as landfill bans, recycling mandates and high disposal fees. In the scrap tire industry, for instance, disposal bans have created a thriving industry that turns old tires into crumb rubber for asphalt, athletic surfaces, playgrounds and landscaping uses, says Bob Davis, president of Green Man Technologies, Cedar Rapids, Iowa.

Civil engineering applications for shredded tires “are growing all the time, mostly for landscaping uses,” Davis says, but there is renewed demand for use as fuel for paper mills and cement kilns. “We're seeing more expansion in the Southeast and upper Midwest regions,” he says.

Energy recovery also is playing a more visible role in the C&D industry, says Taylor Recycling's Kacandes. Much of the growth has come from the New England area, following a recent landfill ban on C&D debris in Massachusetts landfills — the first statewide initiative of its kind in the country.

In late 2003, Massachusetts began prohibiting the disposal of asphalt, brick, concrete, metals, wood and OCC. Next year, asphalt shingles will be phased into the ban, followed by gypsum wallboard in 2007 and carpets in 2009.

To help meet the diversion goals, the state has allowed wood chips to be burned as fuel as an acceptable form of “recovery.” Because few energy recovery plants in the state can meet the emission standards, clean wood chips are being sent to Maine, whose standards are less restrictive.

The Massachusetts ban coupled with the stronger economy and a construction boom is helping to strengthen the price of C&D in the Northeast, especially in New England where there are more processing facilities, Kacandes says. “Most people view recycling markets as demand-driven, but they can be driven by the supply side as well,” he says. “Even one new facility can have a big impact.”

Massachusetts will be a harbinger of several new trends in C&D recycling, Kacandes predicts. In the next business quarter, the state plans to develop more biomass facilities and to promote new recycling efforts for insulation and scrap drywall to help combat odor issues in MSW landfills. Unlike the nearby states New York and New Jersey, which view C&D wood as garbage, Massachusetts has defined the materials as a “renewable resource” that can be used as fuel in incinerators, he says.

An Industry Matures

Nevertheless, China's effects on the recycling industry are predicted to linger for a while. Thus, “We have to learn how to compete directly with Asia. We have to have strong leadership from the main companies,” says NAPCOR's Schedler.

Some in the industry are starting to talk about establishing restrictions, duties or quotas on certain scrap metal and paper exports to China. But others caution that such protectionist actions could open up a “trade war” with Europe or Asia. “Short-term plans don't always solve the problems in the longer term,” Schedler says.

Luckily, says ISRI's Heenan, the scrap industry has matured enough to handle such a crisis without panicking. “We have finally figured out we're an industry, not a bunch of environmentalists with long hair and sandals,” he says. “We have to be run as a business rather than merely an environmentally nice thing to do. While the markets are up, it's time to bank the money now and get ready to absorb the losses later on.”

“It's an important time for recycling markets,” Alexander agrees. “There are more pressures than ever to be cost-efficient. In some cases, some recovery businesses are in a position where it's sink or swim. We have a lot of cards holding up our house right now. Hopefully, it will stay that way.”

Randy Woods, a former managing editor of Waste Age, is a contributing editor based in Seattle.

QUALITY VERSUS CONVENIENCE

An important recycling topic that sometimes gets lost in all the market analysis is the balance between material quality and collection convenience. For many recycling programs, convenience often gets the most attention.

Office Paper Systems' Kevin Stearman says many municipalities will convert their dual-stream collection method, in which containers are separated from paper recyclables, to single-stream, commingled models over the next several years. “It's certainly easier for municipalities. They only need one truck twice a month instead of two trucks each week. But then you wind up with a dirtier product.”

When Stearman processes paper collected via single-stream, there are inevitably tiny shards of glass that get mixed in and abrade his equipment. “The life span of my equipment used to be about eight years, now it's down to about three,” he says. “A lot of paper mills say they don't even want the single-stream paper. They don't like the quality.”

Single-stream collection was predominantly a West Coast phenomenon, but its cost-effectiveness is winning new converts further east. “I see more single-stream MRFs being built,” he says.

The National Recycling Coalition's Michael Alexander agrees that the economics of single-stream MRFs are deservedly getting more attention. “More and more, the name of the game is convenience,” he says. “We have a more mobile society. People are readily accepting recycling as an important concept, but it must be highly convenient.”

Single-stream, however, “is not the only answer to convenience,” Alexander adds. With today's highly automated cart systems, there are ways haulers can collect dual-stream recyclables more efficiently. “Technology has a singular impact on markets,” he says. “The days of the 15-compartment vehicles are over, but in the past two to three years, with new sorting technologies at the curbside, they've been able to collect a much a cleaner feedstock. Municipalities are spending most of their time figuring out how to handle and collect glass.”

Stearman suggests that municipalities that convert to single-stream, should encourage residents to bring their glass to a drop-off center. “It's important to recycle glass,” he says, “but the economics of collecting the bottles just doesn't work.”

“It's one area where we know we won't see much movement,” says von Stetton, who has been getting $20 per ton for his clear glass, $10 per ton for brown, and giving away his green for several years. Most of it goes to Todd Heller Inc., Northampton, Pa., which grinds it as a base for roads and beads for use in reflective paint.
— RW

WasteExpo Watch

Don't miss the educational session “Recycling Markets Panel” at WasteExpo 2004 in Dallas.

Date: Monday, May 17
Time: 8:30 a.m.-9:45 a.m.

Industry experts Bob Davis of Green Man Technologies, Frank Hurd of the Carpet and Rug Institute, and Jerry Powell of E-Scrap News will discuss the latest trends in pricing and demand for plastic, tires and carpet. For more information, visit www.wasteexpo.com.