Riding the Recycling Markets Roller Coaster

Riding the Recycling Markets Roller Coaster

Volatile recycling commodities posted big price gains in 2010, fell early this year and are in the midst of another comeback.

The recycling world continues to rebound from the crash caused by the Great Recession. According to the Washington, D.C.-based Institute of Scrap Recycling Industries (ISRI), the combined tonnages of iron, steel, paper, aluminum, copper, lead, zinc and electronics rose from about 125 million tons in 2009 to 130 million tons in 2010, a modest increase of about 4 percent.

But last year’s biggest news was soaring prices. According to ISRI, those commodities generated $77 billion in revenues for recycling processors in 2010, up from $54 billion in 2009, a 42.5 percent increase. Though prices increased across the board, they were led by paper, steel and nonferrous metal.  So far this year, prices — with notable exceptions in fiber and glass — continue to surge.

Paper Markets Torn

According to the American Forest & Paper Association, volumes of old corrugated container (OCC) fiber have risen, as have office grade paper volumes. Mixed paper volumes have been, appropriately, mixed. Office grade is up while old newspaper pulp (ONP) is down. Nevertheless, prices are up across all grades.

What happened to mixed paper volumes? In 2009, U.S. mills exported 7.6 million tons of mixed paper. That number plummeted to 4.9 million tons in 2010, with most of the drop in exports to China. “I think a lot of that was related to low quality,” says Bill Moore, president of Atlanta-based Moore & Associates. “A lot of fiber is contaminated by plastics, glass and metals.”

The high levels of contamination are likely associated with single stream recycling.

The ONP story is even worse. Tonnage has fallen steadily in recent years. In 2009, U.S. paper mills produced 6.6 million tons of ONP for export and domestic use. Last year, a decline in exports and a slight rise in domestic use led to an overall decline in ONP tonnage to 6.5 million tons.

ONP tonnage continues to fall. In the first quarter of 2011, domestic users bought 545,000 tons compared to 643,000 tons in the first quarter of 2010, a significant decline of about 18 percent.

Despite the mixed performance on the supply side, prices have, somewhat surprisingly, surged across the board.

OCC prices soared from $138 per ton in the second quarter of 2010 to $165 per ton at the end of July 2011. “We think prices for OCC will trend higher for the rest of the year,” says Moore.

Volumes aside, mixed paper sold for $95 per ton in the second quarter of 2010 and $109 per ton in the second quarter of 2011. Ditto office paper. The major component of high-grade deinking office paper is called “sorted office paper”. That category shot up from $206 per ton in the second quarter of last year to $271 per ton at the end of July 2011.

Despite the dwindling demand for ONP, prices have strengthened. By the end of the second quarter of this year, prices had ratcheted up to $145 per ton compared to $102 per ton at the end of the second quarter of 2010. As paper mills close, Moore explains, ONP demand is outstripping supplies, driving the price increases.

“Overall, the health of the domestic paper industry is not real good today,” says Moore. “I think we’re going to see more of the same: supply constraints making markets appear strong, with China continuing to build new mills for recycled fiber and putting more upward pressure on prices.”

Steel and Aluminum on the Up and Up

Recycled steel and aluminum prices continue a pattern of one step back followed by two steps forward, making for a steady comeback since the recession’s crash.

Starting from a 2009 trough of $100 per ton, ferrous scrap reached $400 in May of 2009 before falling back to $300 at the end of the second quarter of 2010. Since then, the price returned to $400, where it has held steady.

“This is a good price, but looking ahead, the forecast is uncertain,” says Gregory L. Crawford, executive director with the Steel Recycling Institute in Pittsburgh. “While steel cans continue strong during downturns, a healthy economy is ultimately what drives steel scrap consumption [and prices] up.”

Despite uncertain economic forecasts, Crawford senses that pent up demand for new cars and replacement appliances may eventually boost steel prices. That said, he notes that once the price passes $400, steel makers will begin weighing the cost of steel scrap against that of virgin materials. “But that won’t happen while the economy remains uncertain,” says Crawford. “They will want to be sure that another slowdown won’t drive the price of scrap back down.”

Aluminum recycling markets have mirrored steel. In July of 2010, the price of aluminum had fallen to around $0.90 per pound from $1.12 at the beginning of that year, according to the London Metal Exchange. By early May of this year, the price had rebounded to $1.25 per pound. In mid-July it fell back to $1.15, still substantially higher than it was last year at this time.

Once again, observers say that economic uncertainty makes it difficult to forecast whether the current aluminum price is sustainable. Nevertheless, prices have risen steadily over the long term. “I’ve seen reports that say the recycling rate rose from 57.4 percent to 58.1 percent between 2009 and 2010,” says John Woehlke, general manager with Evermore Recycling, a joint venture formed by Atlanta-based Novelis and New York City-based Alcoa to procure used aluminum beverage cans. “The recycling rate has continued to increase during 2011.”

Plastic Rates Prove Bendable

As with other materials, prices for polyethylene terephthalate (PET) and high-density polyethylene (HDPE) are bouncing around.

“Early this year, several new PET plants became operational and created new demand that ran recycled PET prices up to $0.42 per pound, just five cents short of the all time high of $0.47 reached in May of 1995,” says Mike Schedler, director of technology with the Sonoma, Calif.-based National Association for PET Container Resources (NAPCOR).

But the market didn’t hold. In April, NURRC LLC, a Spartanburg, S.C.-based PET recycling plant owned though a joint venture between the United Resource Recovery Corp. LLC, also of Spartanburg, and Atlanta-based Coca-Cola Co., closed. Other plants cut back, says Schedler, and east coast Chinese buyers weren’t competitive. Prices fell by 12 cents going into July.

But that month, things began to look up. Chinese buyers bid prices up by a nickel a bale, according to Schedler. By the end of July, prices were once again up around $0.40 per pound.

While prices remain strong, the direction of the economy will determine how they fare in the short term. In the long term, there has been a potentially important development.

In July, PepsiCo Beverages Canada, based in Mississauga, Ont., announced that it had developed the first soft drink bottle in North America made entirely of recycled PET. Previously, PET soft drink bottles only used around 10 percent recycled PET. This was because carbonated beverages create stress that bottles made entirely of recycled PET could not withstand. PepsiCo believes it has found a solution to that problem and plans to boost production of 100 percent PET bottles. If that ratchets up demand, price hikes will follow.

The HDPE story is murkier. In May of 2010, east coast processors were paying $0.33 per pound for natural HDPE and $0.29 per pound for mixed-color HDPE, says Tamsin Ettefagh, a vice president with Envision Plastics, an HDPE re-processor with facilities in Reidsville, N.C., and Chino, Calif. At the same time, west coast prices per pound were $0.29 for natural and $0.24 for mixed color.

By May of 2011, prices had shot up into the low 40- and high 30-cent per pound range. After May, however, prices retreated dramatically. On the east coast, natural had fallen to $0.35 and mixed color had plunged to $0.22. West coast natural was going for $0.32 with mixed color at $0.22.

“Export demand has dropped, making excess resin available,” says Ettefagh, attributing additional blame to the weak economy and high fuel prices.

Glass: A Clear Difference

“Cullet is not vulnerable to the up and down price spikes characteristic of other recycling commodities,” says Craig London, president and CEO of Palo Alto, Calif.-based eCullet Incorporated. “The reason is that glass is insulated from the volatile national and international markets.”

London says this insulation stems from the fact that most manufacturers have plants across the country, allowing them to assign products to plants based on the local market. In California, the plants make green wine bottles, while Wisconsin plants make clear food jars. Thus, plants in regional markets set prices for different kinds of cullet. “Prices paid by manufacturers can range from $20 to $65 per ton, depending on the demand for particular colors,” says London. “Generally, the highest demand is for clear, then amber and, finally, green.”

eCullet buys cullet from material recovery facilities (MRFs) for $5 to $30 per ton, again depending on color and level of contamination. The company then cleans and processes the glass to meet strict manufacturers specifications.

As volatile recycling markets continue to be the rule rather than the exception, processors handling other materials no doubt envy glass cullet’s predictability.

Michael Fickes is a Westminster, Md.-based contributing writer.

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