Weathering the Storm

Kathleen M. White

With the economy in a slump, recycling businesses can count themselves among those American industries that have been hardest hit. Indeed, the economic uncertainty that characterized last year's recycling markets has turned into serious doubt in 2002, as most major curbside recyclables commodities — old newspaper (ONP), old corrugated cardboard (OCC), polyethylene terephthalate (PET), high-density polyethylene (HDPE), aluminum, steel and glass — are experiencing lower-than-normal prices.

There is some positive news: As a commodity-based business, the recycling industry should rebound at the first signs of an economic turnaround. Meantime, recyclers already so used to cyclical fluctuations in prices are hunkering down to wait out the storm.

Exactly how severe the storm will be, however, remains to be seen.

Paper Hard Hit

“Markets have not been good,” admits Gessica Neilson, cooperative marketing manager for the Southwest Public Recycling Association (SPRA), Tucson, Ariz., which markets materials for about 50 communities in the southwest and Rocky Mountain states. “Every single commodity we deal with has had a downturn.”

But OCC in particular, according to Neilson, was especially hard hit at the end of 2001, continuing a downward pricing trend that began in 2000.

“This was not a good buying season for retailers, which has meant not as much of a demand for cardboard,” she says. These market factors, coupled with mills already being over-inventoried with OCC, kept prices for the commodity down.

Prices for most other grades of paper, including ONP, also are not faring well. “Because the recession has caused advertising in newspapers to go down, the actual thickness of each newspaper has gone down as well … further bringing down the price for newsprint,” Neilson adds.

So far in 2002, ONP has dropped more than OCC, according to Bill Moore, president of Moore and Associates, Atlanta. Moore attributes the decline in newsprint prices, at least in the Northeast, to the recent shutdown of the Garden State Mill.

The New Jersey mill, which was acquired in 2000 by now bankrupt Enron, consumed approximately 225,000 tons of New Jersey ONP (old newspaper) each year, with additional tonnage from the East Coast, according to the Association of New Jersey Recyclers, Bridgewater, N.J.

But nationwide, prices generally have been low for old newspaper — a far cry from the high prices experienced for the commodity in 2000.

The recovered paper industry overall is “seeing prices that are as low as they've been in quite a number of years — and we thought at the end of 2001 we were pretty close to the bottom,” Moore says. The paper industry recession started almost a year ago, he explains, thereby preceding the country's recession and making a bad market situation even worse.

The economic aftershock of the Sept. 11 terrorist attacks further compounded fluctuating prices so much so that Moore and Associates had to revise its annual paper pricing forecast to reflect a dramatic drop in prices.

“Prior to September 11, we had a price projection of $75 per ton for OCC in the summer of 2002,” Moore says. “After Sept. 11, the price projection fell to lower than the $50 range.”

The only thing that has kept the bottom of the recovered paper market from falling out has been exports to China. “North American demand has been slow, but China has been buying an enormous amount of mixed paper,” Moore says. “There's been a fundamental shift in export markets as China is putting in paper mill capacity to make newsprint and containerboard.”

Moore predicts China's consumption of recovered paper feedstock to surpass the U.S. recovered paper industry's exports to Canada and Mexico, which traditionally have been the top export markets for the feedstock.

However, the industry still is counting on an economic turnaround to help it in the long-run. “Everyone understands that this recession is going to remain for the first half of the year, but most of the experts are saying that it won't be a long recession,” SPRA's Neilson says.

The other school of thought is that both the economy and productivity have been damaged for the long-term by September 11 and other factors, Moore says. “We had a long upturn in the '90s, and the feeling is that if we had a downturn, it would be long and deep,” he says.

Moore also is circumspect about the economy in the short-term. “The second half of this year will be somewhat of a dice roll,” he says, “but it won't get worse than it is now.”

Plastics Tread Water

If recycling markets in 2000 were described as a “typical year,” then plastic recycling markets, especially in 2001 and early 2002, have been … “holding on,” says Patty Moore, president of Moore Recycling Inc., Sonoma, Calif. “People are really counting on the industry coming back.”

But before a turnaround occurs, post-consumer plastics recyclers undoubtedly will have to continue to deal with volatile markets, most notably for PET. Although the scenario varies by region, PET markets nationwide are plagued with unprecedented low prices and demand.

According to the American Plastics Council (APC), Arlington, Va., domestic PET bales in the Northeast are averaging 3 to 4 cents per pound and are barely moving.

Export markets are yielding better PET prices, but they are extremely unstable. For instance, one handler in the Northwest reported between a 30 percent and 50 percent price drop in one week for exported PET, according to a recently released APC regional markets report. Virgin PET production capacity in Asia combined with high inventories of PET bottles in the region are among the speculated causes of the dramatic price fluctuations.

Compared to PET, markets for HDPE have been fairly stable, according to APC. Additionally, markets for low-density polyethylene (LDPE) film continue to show promise, despite recent layoffs and other woes experienced by Trex Corp., South Hackensack, N.J., a major outlet for LDPE feedstock. Following Seattle's lead, Tacoma, Wash., recently added film to its curbside recycling program, becoming one of only a handful of communities to do so.

Although the state of plastic recycling markets is tied to the health of the economy, there is a sense that things aren't as bad for plastics as they are for other commodities.

“I'm not aware of having much trouble moving materials, it's just a matter of price,” Patty Moore says. “Because of our industry's infrastructure, we're weathering the downturn alright — that's provided things do turn around this year.”

However, if the economy rebounds soon, a larger issue may be adequate supplies of post-consumer resin, particularly PET. “A couple of years ago, it looked like people were going to go out of business because they couldn't get the material,” Moore says. “If the economy turns around quickly, we may see a similar lack of supply come on very suddenly.”

“Anyone who understands this industry knows that there are supply constraints,” says Michael Schedler, vice president of technology for the National Association for PET Container Resources, Charlotte, N.C. “As we move forward … we've got to try to get more collection.”

APC and other groups continue to promote all-bottle collection programs to garner more post-consumer plastic feedstock. Such programs have received mixed reviews from processors and the public, and it remains to be seen whether they could stave off a potential supply problem.

A Mixed Bag

Markets for aluminum, steel, and glass containers, which are predictable materials for most curbside recycling programs, have not been immune to the recession's effects either. As prices for these commodities have dropped, their once-stable markets also have been shaken.

In the Southwest, for instance, prices for aluminum have declined so much that some communities are stockpiling cans until the market turns around, says SPRA's Neilson. Aluminum prices also have dropped on the West Coast, adding to major reductions in revenue sources for recycling programs, according to an APC regional marketing report.

As was the case last year, the big news with the U.S. steel industry in 2002 has been its continued loss of market share to foreign competitors.

“The industry is really struggling with the export issue,” says Kate Krebs, executive director of the National Recycling Coalition (NRC), Alexandria, Va. Steel containers also are being seen less and less in curbside recycling bins, reflecting a softening of demand for the material.

Like steel, glass containers have been losing their foothold in curbside recycling bins, most notably to plastic containers. “Innovations in plastic packaging continue and will always be a threat to the market share of what glass is used for,” says Joe Cattaneo, president of the Glass Packaging Institute (GPI), Arlington, Va. “That's something that's not going to go away.”

Further threatening the market are the demand and prices for cullet, which typically yields low prices anyway, and have fluctuated with the economy's downturn. The good news, however, is that markets for glass have remained fairly stable and are expanding.

“The economy hasn't hurt our area too much, especially in the beer [bottle manufacturing] area,” Cattaneo says. “People tend to drink when times are bad.” While inventories in the glass container manufacturing industry have been drawn down, there are more types of glass containers being made, he says.

Specifically, a new container for flavored alcoholic beverages, which promise to be like the “wine cooler of 2000,” has reached the market, Cattaneo says. There also are more opportunities to market cullet in applications other than containers, such as tile, roadbed aggregate and highway paint.

Cattaneo says one of the biggest challenges faced by the glass container manufacturing industry remains sourcing a clean batch of cullet. Because a contaminant-free stream of cullet is so important to the marketability of the commodity, GPI does not advocate single-stream collection because of the increased likelihood for residue. With the country's 55 glass container plants not evenly spaced out throughout the United States, shipping cullet to end-markets also can be cost-prohibitive.

Because of these factors, municipalities and processors are looking more creatively at how glass can be reused. “We have to look beyond the container market because, as an end-use market, it's very small and distant,” Cattaneo says.

Recycling on the Defensive

Aside from affecting commodity prices directly, the uncertainty of today's economy has affected state and municipal resources, and many curbside recycling programs are feeling the pinch. Indeed, recycling coordinators around the country increasingly are finding themselves in the position of having to justify their programs.

“Everyone's feeling the freeze and the discussion of how important recycling is has come on the radar screen,” says NRC's Krebs. “When a city the size of New York decides to drop curbside recycling, people take notice,” she adds, noting the city's proposal in February to drop its curbside recycling program to save an estimated $4.8 billion from the budget.

“Some of our members have been questioning recycling,” adds Lynn Rubinstein, executive director of the Northeast Recycling Council, Brattleboro, Vt. “There is almost an element that the sky is falling because of the economy, and when you see that markets are falling on top of that, people worry that this isn't cyclical. When you're in the heart of the situation, it's difficult to say.”

Nevertheless, the findings of a recently completed NRC report that quantified the economic benefits of recycling commodities should bode well for the industry in this uneasy time, Krebs says. The report, which, for the first time, compared the U.S. recycling and reuse industry to other manufacturing industries, found that recycling businesses spend a total of $37 billion in payroll, comparable to the auto and truck manufacturing industry. “To know that recycling is comparable in size and dollars to an industry like that says a lot,” Krebs says.

As municipalities defend their recycling programs, the federal government's recycling activities are being scrutinized. For instance, a recent report by the Government Accounting Office found that most federal agencies were not doing enough to comply with the Executive Order on recycled paper and product procurement. At least one senator who requested the report, Jim Jeffords, I-Vt., is calling for hearings on the matter this summer. “We haven't had hearings on recycling on Capitol Hill in 20 years,” Krebs says.

So while the recyclables markets have been bad now, the good news, if any, is that things have been worse, Krebs says. “The years of 1995 and 1996 were some of the worst. I wouldn't say that markets now are as bad as that — but I'm not trying to sell recyclables either.”

That being said, recyclers in the trenches are determined to be resilient. “Recycling is not going to go anywhere,” says SPRA's Neilson. “It's like any market that goes up and down: You just have to be in it for the long haul.”

Kathleen White is a Waste Age contributing editor based in Portland, Ore.

RECYCLING TURNS ON

Despite the bleak market for recyclables commodities, there have been some growth areas this past year. Household electronics recycling, in particular, has burst onto the scene with a groundswell of start-up processors vying for the public's used televisions, computers and stereos.

As the market shakes out, stakeholders are scrambling to develop a regulatory approach for the industry.

“It's definitely a high-profile issue now,” says Kate Krebs, executive director of the National Recycling Coalition, Alexandria, Va. “Electronics discards these days are in quantities we didn't see 10 years ago.”

Indeed, with the advent of digital versatile/video discs (DVDs), high-definition televisions (HDTVs), and other hot electronic household products, such as videocassette recorders (VCRs), televisions, and compact disc (CD) players, it seems more and more electronics are becoming obsolete more quickly, points out Lynn Rubinstein, executive director of the Northeast Recycling Council (NERC), Brattleboro, Vt.

“Every year, the increase in this type of waste gets greater,” adds Mary Ann Remolador, NERC program manager.

While a plethora of electronics processing companies have come online recently, not all have been viable, leading to some companies closing their doors rather quickly, Rubinstein says. “Currently, there is still inadequate processing capacity,” she says.

Another problem is that some components, such as cathode-ray tubes (CRTs), are considered hazardous waste. Massachusetts, and more recently, California, already have banned CRTs from being landfilled.

Rubinstein says that Massachusetts' decision may even cause federal laws to change.

Meantime, she and Krebs are part of a coalition of environmental groups, electronics manufacturers and government agencies working on a plan to manage used electronics. Called the National Electronics Product Stewardship Initiative, the coalition hopes to come up with a national collection and financing system to reuse and recycle electronics through a “shared-responsibility” approach.

Other initiatives, such as the Arlington, Va.-based Electronics Industry Alliance (EIA) Electronics Recycling Project, are providing grants to local governments to establish electronics recycling collection programs. Using an EIA grant, NERC is helping small communities in Maine, Vermont and New Hampshire to set up an infrastructure to collect used electronics. NERC also is helping to research demanufacturing operations as a possible reuse option.

“One of the challenges with the industry will be trying to figure out enough end-markets,” Remolador says. “Because this has grown so quickly, the end-markets that use the components really are trying to catch up.”
— Kathleen M. White