Last year’s credit freeze hurt supply, demand for recycled items
by Betty Beard - Sept. 1, 2009 05:24 PM
The Arizona Republic
The recycling business was so bad last winter that Sedona Recycles Inc. couldn’t find a buyer for the recyclable cardboard it collected.
"We sat on cardboard without being able to move it at all from November to January," said Jill McCutcheon, executive director of the non-profit in Sedona.
The credit freeze that shrunk commerce around the world last fall dropped the recycling market to its knees, and prices for commodities plummeted. With consumers buying less, there was less need for goods made from recycled products such as carpets, insulation, cars and trucks.
The market has recovered somewhat, but it remains below the boom of early last year. Supply and demand are down.
Although recycling remains important for environmental reasons, the crisis shows that recycling prices remain volatile and that the business is highly dependent on international trade - particularly China.
Sedona Recycles is fetching only about half the price it received early last year for aluminum, steel and some plastics.
"I’d say, across the board, plastics dropped 75 percent (at the end of last year), and now they are only half down," McCutcheon said.
What’s more, recycling is vulnerable to being glutted. Used cereal boxes, plastic soft-drink bottles, milk jugs and other items can’t be stored like gold until prices get better. They pile up quickly and start smelling.
Will Flower, the executive vice president for communications at Republic Services Inc., a nationwide garbage and recycling company based in Phoenix, said, "We have to keep moving materials because of the tremendous volume we collect every single day."
Rise and fall
Originally, recycling was not meant to be a business but rather a way to reduce landfill volumes and stop the flood of consumer wastes, said Al Gomez, a Glendale sanitation supervisor with the recycling program.
It’s still not always a moneymaker.
Although Republic Services recycled more than 3.5 million tons last year, Kurt Blascoe, director of materials marketing and recycling, said it is not profitable.
"It’s a fallacy. People think it’s free or that recycling pays for itself. But the price of the commodities we sell don’t come anywhere close to the cost of collecting those materials. That’s why we have to charge for those services," he said.
Nevertheless, solid markets have developed for a wide range of recyclables.
Aluminum and glass makers, for example, can reduce their energy costs by making new aluminum and glass out of recycled aluminum and glass. Asian countries that don’t have many trees need recycled fibers to make paper.
The rising demand drove up prices for commodities, and it has been a booming business for at least the past three or four years. New companies entered the market and so did municipalities that contracted with private companies and shared in the revenues. Most of the Valley’s largest cities have such arrangements.
Blascoe said prices soared last year because China bought a lot of recycling commodities before the Olympics last summer. Demand fell after the Olympics and the credit freeze, and drastic slowdown in consumer spending devastated recycling.
Republic Services, which estimated it recycles about 13,300 pounds a minute, watched its commodity revenues fall by $100 million to $700 million from about mid-2008 to mid-2009.
Glendale had been making money but now isn’t breaking even, Gomez said. Because the city operates its own recycling program, it follows commodity prices closely.
He said the break-even price for blended wastes is $140 a ton but the city is receiving only about $115 a ton. Last year, its prices rose as high as $205 a ton and fell to $35 in December. Gomez expects it could take another six months to break even.
The market crash drove Arizona Environmental Recycling, an 11-year-old Phoenix metals recycler, into filing for Chapter 11 bankruptcy reorganization this spring.
Matt Hinson, president of the company, said metal recyclers like his had just recovered from the effects of a tough 2007 state law designed to thwart copper and other metal thefts when the market fell. He also faced a lot more competition when metal prices rose over the past few years.
The company had to buy new equipment to handle the increased documentation required under the law. Then came the recycling crash, and many of its industrial customers went out of business.
"We had to do major investments with all the stuff they wanted," Hinson said. "And within a year, the market just crumbles."
Steve Hastings, vice president of sales and marketing for Hudson Baylor Corp., a Newburgh, N.Y. company that has run recycling programs for Phoenix, Mesa, Scottsdale, Gilbert and Avondale, said he thinks markets have stabilized.
"I don’t think we’ll ever get back to what we experienced in the last three to four years, but there is movement," he said.
Robert Cook, manager of the finance and supply chain for AbitibiBowater Recycling in Houston, said the way to survive in recycling is to have a long-term outlook and long-term contracts. The Montreal-based company is seeking bankruptcy protection and recently sold a Chandler processing plant to pull back and focus on paper recycling.
Gomez urges households to keep recycling.
"It’s still cheaper to recycle than to landfill," he said.