Is America's Recycling Industry Really in the "Dumps"?
Price vs. Movement
Recycling is a manufacturing process. The recyclable materials we collect are commodities and like any commodities there are ebbs and flows in supply and demand. But somehow, with every downturn in the recycling market, there the rash of Chicken-Little sky-is-falling recycling-is-forever-broken news stories. Unfortunately, too often because there are multiple issues happening at the same time, the writers of these stories confuse issues. In a market downturn, and inevitable market recovery, there are two things to watch: price and movement. It’s important to differentiate between the two.
When markets start to crash, they freeze. From a mill buyer’s perspective, if prices are plummeting, why buy today if you can get it cheaper tomorrow. As a consumer, would you buy a pair of jeans today if you know they will be on sale for a lower price tomorrow? Probably not unless you absolutely need them today. The same thing happens among mill buyers when the price is crashing.
If you are a collector or processor of recyclables when that happens, that is terrifying. We have regulated the collection of recycling, so the stuff keeps flowing into your trucks and your processing facility. But if the mills aren’t buying, stuff keeps accumulating at your facility with nowhere to go. You face the threat that you will encounter a cash flow issue, a fire hazard, a permit violation, an issue with your neighbors, or some combination of all of the above. It is terrifying and a legitimate panic when markets collapse. If someone isn’t prepared, it can be job or company ending. But it is temporary.
After a while, the market reaches rock bottom and mills start buying again at the new low price. From a mill’s perspective there is no reason to hold off on buying because the price won’t likely go any lower. If anything, if you wait any longer, you might miss out on the best prices. So you start buying – cautiously, but enough that movement returns to the market. When you read or write media stories about recycling crashes, pay attention to movement vs price.
For most commodities, recycling is not broken, nor is it in crisis. Some domestic recycling mills are having their best year in almost a decade because they are able to get their supply (our recyclables) for lower prices that keep them viable (if anything the last few years of elevated prices and higher contamination rates were their crisis – one that some domestic mills did not survive). At these prices, you are hearing about domestic mill investments again for the first time in many years. There are a few commodities (particularly the #3,4,6 and 7 plastics) for which movement is still stuck. But in the scheme of a curbside recycling mix, that is an incredibly small percentage of the tonnage being collected for recycling. What is in crisis is not recycling – it is free convenience.
We collectively got very used to inflated prices for recyclables (especially paper because it is still so much of the residential recycling mix by weight). In our quest to make recycling easier, as an industry, we implemented costly collection and processing systems. And because for years the inflated prices we got for the commodities (particularly paper) covered the cost of that more-expensive collecting and processing, we got used to that convenience being free. But it was never free.
Residents and residential recycling programs may now have the existential crisis of having to choose between convenience and free pricing because they may not be able to have both. Certain collectors and processors may have a crisis if they cannot get consumers to pay for the convenience of their services that they used to be able to offer for free. But recycling is a system that is bigger than any one component. One part’s loss is another part’s gain. There will be adjustments and changes to some collection programs. But as a system, recycling will be fine. The real crisis ended when movement began again. The rest is just a price correction, like we see in any commodities market.