Economic crisis hits city recycling

Falling demand for recycled materials has caused a sudden collapse in scrap prices.

By , Contributor to The Christian Science Monitor

The global economic crisis has claimed an unlikely victim: the curbside recycling program of the tiny city of Fountain Inn, S.C.

What was once a sustainable service for the small town of 6,000 has become a major economic liability almost overnight for reasons few saw coming. Since October, the global market for scrap paper and scrap metals has fallen faster than any time in recent history.

"We were being paid to recycle, and now we're being charged," says Lori Cooper of the city's Public Works Department.

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Recyclables have long been a volatile commodity, but the speed of the collapse has shocked the industry and exposed just how reliant it has become on foreign buyers, especially China.

The prices of newspaper and corrugated cardboard have fallen nearly 80 percent since last summer, when both were trading at over $150 a ton, according to Recycling Resource Magazine and The Brown Sheet, an industry pricing newsletter. Today, cardboard trades at $32 a ton and newspaper at $28 a ton.

Aluminum cans sold for $1.06 a pound last March. Now, they sell for 47 cents a pound.

"Nobody was prepared for this type of fall in this short of an amount of time," says William Moore, president of Moore & Associates, an Atlanta-based paper recycling consulting firm.

Mountains of paper are now piling up in warehouses across the US. A handful of recyclers have already gone out of business. If prices don't rebound soon, taxpayers could see their recycling bills increase as cities decide to follow Fountain Inn's lead and cut back their recycling programs – once a reliable revenue source – or start paying to keep them.

The pileup in recyclables is partly the result of American consumers' cutback in spending. With fewer sales, foreign manufacturers need less packaging material to ship their products in, and foreign mills need less scrap from US recyclers to make that packaging.

Recyclers and scrap dealers now have large amounts of material they can sell only at a steep loss. Some companies with warehousing are stockpiling in the hope that higher prices will soon return, but others with municipal contracts that bind them to continue picking up scrap, are unloading inventory for prices a fraction of what they would normally receive.

Even those firms willing to unload scrap at a loss are not finding buyers. "When you can't move material at all, the anxiety comes from, where are you going to put this stuff?" says George Sidles, recycling manager for Seattle.

In the past, many trash and recyclables collectors would simply landfill the waste. But rising land filling costs and state and contractual prohibitions now mean recyclers must wait for better times or simply absorb losses.

Scrap prices for both paper and metals hit record highs last summer.

"This decade had the highest demand and the best pricing ever," says Jerry Powell, editor of Resource Recycling magazine. "But if you look at actual market growth, all of the increase is due to foreign demand, and 80 to 90 percent of that is due to China."

Chinese demand ahead of the Olympics and heightened worldwide spending spurred demand for raw materials from the US. So much so that the price of shipping to Asia on once empty shipping containers suddenly surged.

But when prices began falling, international buyers fled, says Robert Stein, a vice president at Alter Trading Corporation, a large scrap metal recycler based in St. Louis.

Reliance on foreign demand has a big impact on how domestic recyclers can operate, says Chaz Miller, the director of state programs for the National Solid Wastes Management Association. "The Chinese make up less than half of the market, but they have a tremendous impact on pricing, and they can afford to pay better than American mills," because of relatively lax environmental standards and more efficient technology.

Chinese mills are also suffering. Small profit margins and environmental costs make them particularly sensitive to changes in US demand, says Vivian Ou, CEO of Diamond Bar, Calif.-based Ralison International, which supplies scrap paper to one of the largest paper manufacturing operations in China.

Mills in China recently agreed to cut production by as much as 30 percent to help preserve business, Ou says. "In China there are a lot of small mills that cannot survive. Everyone understands that this is the situation now." [Editor's note: The original story suggested that mills in the US were also cutting production.]

Still, there's some optimism that the current crisis will be short-lived. Cities can expect less revenue from its recycling operations, but recycling won't simply disappear, says Jorge Santiesteban, solid resources manager for the city of Los Angeles.

In the short term, domestic recyclers can recoup some losses by charging higher collection fees – as Fountain Inn did. And most large cities negotiate long-term contracts with minimum prices to keep revenue flowing.

Some states are mulling systemic changes, like requiring domestic producers to use more recycled material in their products. In California, says Mr Santiesteban, there is an awareness that "the infrastructure has to be rebuilt" to make it less reliant on the export market.

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