Economy Hurts Recycling Markets; Industry Sees Hope in Stimulus Package

By Charlotte E. Tucker

Worldwide economic troubles and the global credit crunch have contributed to one of the most precipitous drops in the recycling market that the industry has ever seen, according to officials in the recycling industry, but relief may be on the horizon in the form of President Obama's plan to focus on infrastructure issues.

“Right now, everybody in the chain is losing,” said Bruce Savage, vice president for communications at the Institute of Scrap Recycling Industries.

As recently as six months ago, Savage said, municipalities could collect residents' recyclables and turn around and sell that material to a scrap recycler or broker, which in turn sells it to either local recyclers and extruders or overseas companies, turning a profit either way.

That all changed in the fall, when prices started plunging. From astronomical—perhaps even all-time—highs over the summer, prices fell to what Savage called an “almost unprecedented” low. Markets for paper, plastics, steel, iron, and other metals went from boom to bust practically overnight.

According to the Official Board Markets, which tracks industry prices for recyclables, corrugated cardboard, which was selling for $120 per ton in the Chicago region in April, fell to $20 per ton by December.

Some types of newspaper, selling for $95 per ton in the Chicago region in September, had a value of zero during parts of December. Prices differ by region, but the trends—specifically the dropoff in prices at the end of 2008—held true across the country, said Robert Craggs, director of the solid waste management practice for consulting firm R.W. Beck.

“There are cycles with these types of commodities, as with any commodities,” Craggs said, explaining that the recycling industry is generally well-adapted to the cyclical nature of the business. “But the change here took place over such a short period of time. That's what makes it unprecedented.”

Supply-and-Demand, Credit

Supply-and-demand economics are at the heart of the downturn, said Craggs and others in the recycling industry. Paper and corrugated cardboard were in high demand by China and other manufacturing countries in the earlier parts of 2008, driving the prices up. But when product orders slowed, those countries required fewer boxes to ship those orders.

The same economics explain the dropoff in steel prices. With construction and automobile markets grinding to a standstill, the demand slowed, said Greg Crawford, vice president, operations, for the Steel Recycling Institute. The one bright spot for the steel industry is in steel containers, Crawford said, referring to cans used for food and general purposes, such as paint. That market's prices, through relatively low, are holding steady, he said.

Compounding the slowdown in manufacturing is the global credit crunch, said David Weitzman, vice president of RRT Design and Consulting, which designs systems to help automate recycling.

For most products, Weitzman said, the United States is a net exporter of these secondary commodities. When people export steel or paper to places like China or India, they do that based on a letter of credit. When lenders started reining in credit, would-be buyers could not pay for their purchases.

“With the credit crunch on top of a worldwide lack of demand, and you had what was a perfect storm,” Weitzman said.

Hot Commodity Chills Suddenly

Collection companies that had been barely able to keep up with high demand were suddenly seeking warehouse space to keep their excess product. But companies can only hold on to scrap materials for so long, and products like paper, which is useless if it gets wet, are very difficult to inventory, Savage said.

At Unlimited Recycling Inc. in Richmond, Mich., Maria Marin McInturf has experienced the shift firsthand. Part of McInturf's business is collecting recyclables such as paper, cardboard, cans, and plastic bottles from offices and businesses. Most of her income comes from collection contracts with clients, but she had become accustomed to receiving a rebate when she took those materials to a recycling center. All that changed late last year.

“For cardboard, we used to get $40 a ton,” she said. “Not we have to pay $5 to get them to take it.”

McInturf, who has been in the recycling business for 10 years, said she knew enough about the cyclical nature of the market not to count on those rebates. She considered them extras, not part of her income she could rely on. But she said she saw other companies go under when the rebates trailed off.

“It's hasn't affected my company to the point where it's going to go out of business,” she said. “You have to look at it as getting a rebate is better than having to pay for the waste. Rebate is the icing on the cake.”

Construction Boom on Horizon?

Depressed as the recycling markets might seem now, many in the industry predict that prices could begin to rise again soon.

The Obama administration has proposed a sweeping stimulus plan that would inject hundreds of billions of dollars into the rebuilding of bridges, roads, and sewer systems. All of that building will require steel, and an uptick in demand will raise prices, Crawford said

“We're all looking forward to a much better 2009,” he said.

Highway and bridge construction will increase demand for steel and other raw materials, which could be enough to start a turnaround, Weitzman said.

He added that getting U.S. workers back to work is important for all recycling markets, because that would increase their ability to buy products. “That's what drives the markets and will return our industries to higher levels of production,” he said.

Others cautioned that relying solely on infrastructure to lift the recycling industry could be a mistake.

“Theoretically, we should see a rebound in the markets” if the stimulus program works, said Craggs. “It all hinges on how long that takes. Is it enough money? Is it in the right place?”

Craggs said the infrastructure plan is a good one, but he would also like to see more development of local and regional recycling and reuse of recycled products domestically rather than reliance on their value to overseas users.

Savage said he thinks the market will continue to be tight for “a while” and will not come around until American consumer confidence rebounds.

“It's all really about consumer markets as to what people are buying and if they're buying,” he said. “If they have confidence in the economy and are going out and making purchases again, it'll come back.”

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