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Economic crisis hits city recycling

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

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"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."

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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.