At the start of 2009, it is clear that markets for recyclable materials have been hit hard by the global economic meltdown. Since October 2008, prices for recyclables (also known in the industry as "recovered materials" or "secondary materials") in the Northeast have decreased 75 percent or more. Like any commodity, the price paid for recyclables rises and falls with supply and demand.

The sudden worldwide decline in consumer demand for new products has reduced the need for metal, plastics, and other materials used to manufacture new goods, and for packaging and boxes for these goods. The result: a market that could barely keep up with the demand for new products six months ago was suddenly overstocked with inventory and needed less feedstock for new production.

The State of Markets for Secondary Materials

The marketplace for recovered materials is a global one. For example, in recent years, China bought approximately 20 percent of paper recovered from U.S. consumers and businesses on an annual basis according to Pulp and Paper News (November 14, 2008). In recent months, Chinese mills have largely stopped buying recovered paper from the United States, due to a decline in consumer demand for products. For the same reason, many U.S. recycled paper mills are taking "downtime" (temporarily closing their doors to incoming material). The result is surplus paper and low, low prices.

Dramatic fluctuations in markets for recovered materials are not new. As Jerry Powell, editor of Resource Recycling and an authority on secondary materials markets explained in a recent "Webinar" sponsored by the U.S. Environmental Protection Agency, recycling markets have recovered from similar downturns in the 1970s, and in the early and mid 1990s. From the late 1990s until the current economic crunch, there was actually a greater demand for recovered materials than was being supplied by collection programs. Some experts believed that prices for recyclables had gotten so high that a market correction was imminent by late 2008 or early 2009

Mr. Powell reports that most but not all recovered materials have been affected by the downturn. For example, there continues to be a market for a large portion of recovered office paper, which is made into towel and tissue products for which demand has been stable. Glass markets have also held steady, as glass is not traded internationally. Markets for recycled plastics, however, have been affected by big declines in natural gas and oil prices, which make virgin materials less expensive. For example, the market for high density polyethylene co-polymer (#2 colored plastic containers), which goes into detergent and other household product bottles, has suffered because prices of virgin resin (made with natural gas) dropped so low that recycled resin could not compete.

Unlike on the West Coast, which relies almost exclusively on export markets, mills located in the Northeast and Canada are still using recovered paper and other secondary materials (glass, plastic, metals), although in smaller quantities due to decreased demand. Massachusetts is home to Newark Group's 100 percent recycled paper mill in Fitchburg, which accepts mixed residential paper from cities and towns across the state. Abitibi Bowater, which collects paper from hundreds of community drop-off sites, also has recycled paper mills in Canada and the Southeast.

MassDEP staff members have discussed the market situation with many materials recovery facility (MRF) operators and recyclers including Casella, Waste Management/Recycle America, E.L. Harvey, The Newark Group, and Abitibi Bowater.  All have reported that while prices are very low, they are still able to find end-users for the paper, glass, plastic and metals they collect. The companies report that they are implementing a variety of strategies to deal with the current downturn in markets. Some have reported that they are warehousing baled material until pricing improves, rather than selling the material at a loss. Companies are also applying stricter quality control on material specifications, in contrast to the relaxed standards that came into practice while Chinese markets were buying strong.

Generally, surveyed companies are honoring price commitments made in long-term municipal contracts, even if they are selling material at a loss. At the same time, some companies have increased their spot tipping fees for processing of non-contracted materials to prices that are close to tipping fees for waste disposal.

Managing During the Secondary Materials Market Downturn

With the high solid waste tipping fees that prevail in the Northeast, it is important for municipalities to remember that the greatest local economic benefit from recycling is avoided disposal costs. For most municipalities, each ton that gets recycled saves $60 to $70 in tipping fees, which can save up to tens of thousands of dollars each year.

MassDEP offers the following suggestions to municipal recycling and waste managers for dealing with the market downtown:

• Structure your contracts with recycling haulers with a floor price for materials, and with a means of sharing both the risk and the profits associated with a commodities market. Tying the price to a market index such as the Official Board Markets (aka "the yellow sheet") allows pricing to float with market rates.
  
  
• If your hauler needs to renegotiate a fixed price contract for recyclables, consider negotiating a short term temporary arrangement with both a floor price and a market index. This should include an agreement to return to the terms of the original contract in a specific time period (within six months to a year, for example) or to re-evaluate the need to continue the new terms at that point. Another option would be to require the hauler to provide a higher share of revenue in good markets.
  
  
• Your contract for recycling services should be based on an understanding of the financial situation of your hauler and the markets he or she uses. Your ability to maximize the value of your recovered materials will depend to some extent on your hauler's ability and reputation for delivering quality materials to end-markets over time. As in any procurement, if a bid from an unfamiliar vendor looks too good to be true, it probably is too good to be true.

For More Information

Contact Brooke Nash at 617-292-5984 or brooke.nash@state.ma.us.