Slow Recovery Reported For Recycling Markets

Philip Burgert

After one of the worst years for post-consumer prices, an increase in demand for recycled commodities is on the way, according to consumers, brokers, dealers and collectors of recovered materials.

In recent months, there has been a late-year run-up in prices for scrap steel, and some strength has also been recorded lately in natural high-density polyethylene (HDPE). Other commodities have been weakened throughout the year by the economy, competition from low pricing levels for virgin materials and fluctuating international market conditions (see chart on this page and page 46).

The poor market has resulted in consolidation in such segments as plastics and glass recycling. Smaller companies are closing down and leaving the business, while larger players in the polyethylene terephthalate (PET) market are acquiring each other for increased market share. Glass recyclers have shifted some portion of their processing to outside suppliers while concentrating their production.

Metals Aluminum used beverage can (UBC) prices fell to 30 cents a pound in markets east of the Rocky Mountains in early November, ap-proaching the industry's all-time record low of 29 cents a pound in June 1985.

Brokers and other market sources attributed the weakened pricing of aluminum, which has long been one of the strongest commodities for recyclers, primarily to international market conditions. These conditions include an oversupply of metal on the London Metals Exchange and large quantities of aluminum being sold by plants in the former Soviet Union in an effort to attract hard currency.

A seasonal late-year glut of used beer and soft drink cans was also given credit for helping aluminum can sheet producers to drain nearly 10 cents a pound from their offering prices for UBCs since last De-cember.

According to market sources, the heavy flow of can scrap from the aluminum companies' own recycling operations and the metals bought from municipal and industry suppliers eroded whatever price strength there was and prompted the cuts in prices.

"There has been plenty of supply and not much demand," said Tom Mele, president of Connecticut Met-als Industries Inc., Monroe, Conn. "The inventory is coming into play in terms of pricing, and prices are depressed. Cans were plentiful in the third quarter and historically in the fourth quarter there is not a lot of demand for can sheet."

He and other market sources noted that markets usually come into balance prior to December, which is traditionally a low purcha-sing month because consumers don't like to start the new year with inventory. Activity usually begins to re-sume in the first quarter as mills gear up for can sheet production in the spring and early summer.

"But I wouldn't bet the ranch on whether we can depend on the dy-namics of the last 10 years to hold true in this market," Mele said. He noted that a key factor in the international markets for aluminum is supply, and that scrap has been competing with cheap ingot coming from two of the major hydroelectric-powered smelters in southern Russia.

The ferrous market, meanwhile, has been characterized by three periods of tightening supplies, in-creasing demand and rising prices separated by two periods of uneasy balance at mid-year. A big reason, according to some suppliers, has been the steady 85 percent and higher operating pace at many steel mills and the strong demand for steel from the auto and construction markets in recent months.

With steel mills running flat out and orders booked into the early part of 1994, dealers and processors in several regions said they will look for little downturn in prices and steady demand into the early part of the new year.

Much of the demand seems to be for prompt industrial scrap, al-though dealers said they expect ob-solete grades to continue rising at a slower pace.

"The consumers discovered there was not a lot of scrap in the dealers' yards," said Fred Bonnett, president of Davis Industries Inc., Lorton, Va. "The market will drop some but not drastically. People in heavy equipment and construction contractors are starting to get busy and I think the economy is getting stronger."

While steel can scrap rose moderately early in the year, a strong run-up of $20 to $30 a ton occurred in some steel can prices with the fall increase in demand for obsolete scrap, according to some dealer and mill sources.

According to dealers, the increase in can scrap prices was higher than the increase seen in No. 2 bundle prices, which it usually reflects.

Paper Depressed demand levels combined with some stability characterized the paper recycling business through much of the year. Paper handlers said they struggled this year to move their products in a market that showed no sign of a de-cisive upturn or downturn in the immediate offing.

Secondary paper, especially in its higher grades, is definitely a buyer's market, and buyers say the quality of the supply reflects that. By late in the year, West Coast buyers said that good quality, well-sorted office paper could be bought for well under $180 a ton, down $30 to $40 a ton from the first of the year.

White ledger has been reported at prices as low as $120 a ton, down $40 a ton from earlier in the year. At the high end of the market, some shipments of computer paper have been able to fetch up to $200 a ton.

Mixed office grades, however, continued to show some excess capacity following the start-up of several mills primarily on the West Coast and in Canada that are equipped to handle mixed materials.

Additional similar capacity is ex-pected to come on-stream in other parts of the country in the months ahead.

After shredded cans rose as high as 45 cents a pound in some parts of the country late last year, the weakening began in January and was first seen among secondary smelt-ers, some market sources noted.

"The export market has been lackluster," said a recycler in Seattle. "We really haven't seen much movement in any area, e-ven with additional recycling capacity in paper." European markets, he noted, have been swamped by government mandates requiring recycling, which has re-sulted in the dump ing of material onto Asian markets that usually buy from the West Coast.

Markets for old corrugated cardboard (OCC) have failed to fulfill the promise they held earlier in the year. Several dealers said they have been finding homes periodically for OCC, but "it's been touch and go," as one major West Coast processor put it.

"It's been very tough and the mills and packers are just trying to survive," said Ronnie Grant, assistant manager of paper stock procurement at Sonoco Products Co., Hartsville, S.C. Grant sees little chance of an upturn until after the first quarter of 1994, and while paper consumption usually climbs in the fourth quarter, this year's volumes are expected to be below historic levels.

"It's been a disappointing year," said James Klein, president of the Recycled Fibers division of the New-ark Group Inc., Cranford, N.J. "We expected a change for the better in the second quarter but we just didn't get the change we expected."

Klein said his company's outlook calls for little im-provement before mid-1994, noting that linerboard and news-print both need price increases or relief from discounted pricing while mixed paper has been affected by the European market.

Plastic Increasing competition in the PET end of post-consumer plastics recycling pushed prices of clear and green PET higher during most of this year while other plastics remained stable or lost ground, ac-cording to collectors and processors. But at the end of the year, improving demand and pricing was also seen for HDPE.

"The fact that everybody is switching into PET is pushing up the prices for all types, including custom PET," said one East Coast processor, who noted that the competition is starting to cut margins even for companies that have had past successes with PET.

The greatest success in PET is ex-pected to be seen by companies that have integrated collection to new product manufacturing, but a growing trend of collection, flaking and pelletizing companies establishing alliances with end product makers has also been forecast.

Some grades of plastic such as low- and linear low-density polyethylene and types of custom PET and colored HDPE have fluctuated during the year based on economic trends, exports, shipping rates and the development of new capacity in Asia for producing both virgin and recycled materials. "Plastics have been up and down like a pogo stick," said one East Coast materials recovery facility operator.

The latter part of the year saw some strengthening of HDPE prices on the West Coast. In California, manufacturers have to comply with legislation that requires recycled content for bottles and trash bags by 1995. Because PET is already more widely recycled, it is less affected by the legislation, said Caroline Rennie, marketing manager for Envirothene Corp., Chino, Calif.

"Plastic prices have been under fantastic pressure from virgin material prices this year," she added. "We probably have to have more of this type of legislation. We have to continue to put pressure on the economics of the system."

Glass Dislocations of supply for glass plants and efforts to expand non-glass production markets for post-consumer glass were the only shifts seen in the primarily stable glass market during the past year and most observers said they expect this trend to continue into 1994.

Participants in the industry's Glass Recycling Task Force said that plants in several parts of the country reported they are always looking for increased post-consumer supplies.

But they noted that, due to the cost of transporting glass and the competitive pricing of sand, soda ash and limestone raw materials, an in-crease in cullet prices is unlikely.

The price of $50 a ton paid for clear glass delivered to plants in many parts of the country, most of which are out of metropolitan areas, is about the highest price that can be expected for cullet, according to a spokesman for Owens-Brockway Glass Containers, a unit of Owens-Illinois Corp. He noted that lower prices are paid for brown and green glass because they must be shipped to other areas for processing.

Some glass recyclers have focused their efforts on expanding non-glass making uses of post-consumer glass. David Daugherty, director of the Clean Washington Center in Seattle, a state agency, cited studies that have found 85 alternate uses of glass, although he noted that none have high values.

Recyclers in Hawaii, however, have noted that pulverized glass used for blast cleaning was replacing sand imported from California at prices of more than $200 a ton. Andela Tool & Machine Inc., Richfield Springs, N.Y., has supplied Aloha Recycling Technologies Inc. of Maui with pulverizing machines and found 75 applications for pulverized glass.

The state of the recycling market is "an economic problem, not a problem of moving the material," said Don Kneass, regional recycling coordinator for Waste Management Inc. in Seattle, who recently completed a two-year term as market development chairman for the National Re-cycling Coalition.

"The market continues to recycle at record numbers and the market continues to buy, but market prices are low," he said.