During a fireside chat on the state of recycling with senior recycling executives from Republic Services, Waste Connections and Waste Management, Michael E. Hoffman, managing director and group head of diversified industrials at Stifel, reports that the “Big 3” solid waste companies say solid waste industry fundamentals are “doing just fine.”
“The Big 3 all see a healthy solid waste market with no signs of year-over-year weakness by line of business or geography,” stated Hoffman in a recent report.
When it comes to recycling, despite added weakness in commodity values in fiscal year 2019 versus expectations, the Big 3 have begun to reprice residential collection contracts where both trash and recycling services are offered, but solid waste fundamentals are good enough to offset the 2019 recycling headwinds.
During the fireside chat panel, Hoffman sat down with Sean P. Duffy, vice president of recycling operations at Republic Services; Dan Kurtz, director of recycling at Waste Connections; and Brent Bell, vice president of recycling for Waste Management. The panelists believe commodity prices are assumed low forever (with optimism that new mill capacity might be a catalyst for improvement). Therefore, Hoffman pointed out, their focus is on processing costs, contamination within curbside collection and changing the business model, technology and taking ownership of consumer education.
Based on Hoffman’s October 3 report, here are some key points from his discussion with the Big 3:
- Commodity prices. There was optimism that added paper-making capacity using recovered fiber as feedstock could stimulate recovered fiber prices, but the panelists were “pretty sober” about the commodity basket outlook. “We would assume the worst and plan accordingly, and if paper prices improve, all the better,” explained Hoffman.
- Business model has changed. If the customer had any doubt the recycling business model was changing, this panel discussion put the topic to rest, explained Hoffman. The market has moved to a process fee focus and will continue to work through remaining contracts from a commodity-based model to a process fee, with enforced contamination standards of the collected load and contamination charges sent back to the customer when necessary. Among the three companies, there was variability of what has been or can be accomplished to date based on the mix of residential contracts, exclusive franchise contracts and third-party and open market commercial recycling. Hoffman points out that Waste Management and Republic Services have had similar success with residential contracts and open market/third-party conversions. Waste Connections, on the other hand, is in a more challenged position because most of the recycling exposure is embedded in exclusive market franchises, so it will take longer to adjust the terms. The company is pushing open market prices to help mitigate commodity price pressure.
- Dual stream versus single stream. Not one panelist saw a shift away from a single stream format. The panelists reminded the audience that homeowner participation was not good regarding using source-separated bins and that they, as operators, do not want their drivers getting out of the trucks to sort out contamination in the bin at the curb, which happened frequently when dual stream dominated recycling collection. In addition, none of the current processing capacities at materials recovery facilities are designed to handle dual stream loads.
- Contamination remains stubbornly high. The panelists noted contamination at the point of collection remains a recurring problem. Contamination still runs more than 20 percent, despite two years of market pressure on recycling models and the mainstream media attention on the issue. The panelists acknowledged the need to take ownership for educating the public on what is economic recycling. Batteries are a perfect example; they have a recycling emblem, but there is a picture that indicates they should not be put in a conventional recycling bin. Waste Management noted it captures 30,000 batteries per month in curbside recycling collection.
- Technology has a role to play. All three companies are in some stage of testing and incorporating technology to lower processing cost and reduce contamination of separated materials. Republic has a Plano, Texas, plant up and running, and Waste Management is building a state-of-the-art facility in Chicago, which is going through an operating shakedown now. Both are using better optics, ballistic separators and, in some cases, robotics, which incorporate artificial intelligence to help improve throughput performance and quality.
- Packaging changes and extended producer responsibility (EPR) programs. None of the panelists would support EPR programs to improve recycling. In their view, experience shows the added cost of EPR raises prices to the consumer with nominal changes in recycling rates. Panelists did note that more and more packaging is flexible and multilayered, and none of that is recyclable in curbside programs. They also pointed out that multiple constituencies need to come together when packaging changes are afoot to address everything from product quality, transport cost and recycling.
- Program cancelations. The panelists noted that until mid-2019, only small municipal recycling program cancelations were the norm. However, since then, several large municipalities have canceled their recycling collection/processing programs due to the unfavorable economics.