May 8, 2014
WasteExpo 2014 was held April 28 through May 1 in Atlanta. The educational sessions provided a wealth of information on key industry issues, some of which will be featured in future issues of the Circular File. This month, however, we are focusing on impressions from the show floor, and related tidbits from several education sessions.
Conversational Impressions from the Show Floor
The mood at WasteExpo 2014 was generally upbeat, particularly as business appeared to be picking up after a particularly brutal winter in many areas of the country. The floor was busy, with attendance and the number of companies represented up from last year.
The Investor Summit, introduced last year and hosted by Wunderlich Securities, returned to an enthusiastic, full room of both investors and small haulers. Composting and Organic Recycling expanded to two educational tracks this year, while “Super Sessions” were introduced on a number of topical issues, such as diversion.
Below are our thoughts on key industry drivers gleaned from numerous conversations with industry players, both public and private.
Volume, Not Price, was the Talk
As opposed to the last two years, the subject of industry pricing rarely came up, either good or bad. This likely reflects a continuation of trends that emerged last year – a generally more benign pricing environment, aided by the slow turn in industry volumes that began last year, but muted by pressure from a low consumer price index (CPI) environment.
On the other hand, there was consistent talk about the “pop” in volumes that had occurred, in either March or April, depending on geographical location and when the winter finally subsided. The debate centered around whether the pop reflected just pent-up demand from the difficult winter, or whether it was a harbinger of better volumes to come from a stronger economy – seasonal or seasonal plus?
Roll-off and overall municipal solid waste (MSW) disposal volumes were consistently cited as bright spots or areas of strength, though well below the prior peak, while commercial collection trends remained a mixed bag. Geographically, both Florida and the West Coast appear to be recovering from depressed levels, while areas around active shale basins were characterized as very strong.
Presentations from the Investor Summit (generally from the larger, publicly-traded players) were consistent with the floor commentary, and the Summit was further enlivened with a protest from a representative of the Teamsters union!
M&A Activity on the Quiet Side
Traditionally, WasteExpo has always been a hotbed of merger and acquisition (M&A) activity, and the typically more active acquirers, like Waste Connections and Progressive Waste Solutions, saw steady traffic in and out of their booths. Additionally, private equity players were once again out in force.
That said, acquisition speculation was more muted than in years past, although two large, privately-held regional companies were frequently noted as being up for sale. The increased capital spending and acquisition discipline, which began in earnest last year across the industry, was even more pervasive this year, playing a part in the more muted M&A picture.
Once again, seller expectations were characterized as too high, and as one M&A specialist in the industry quipped, “eight is the new six.” The number of private equity players and their interest in the business was widely bemoaned by the strategic players as the reason seller expectations were so high (combined with a low cost of capital).
Recycling Outlook More Restrained and Constrained
Although industry participants are still generally in agreement that the growth in the waste stream is in diversion and/or recycling, planned capital investment in the area is being eyed much more warily and selectively, and in fact, recycling operations are instead being rationalized much more frequently. Two years of below-trend recycled commodity pricing, combined with higher processing costs as a result of China’s Operation Green Fence, have dampened enthusiasm for growing recycling operations – particularly as opposed to two years ago, when single-stream recycling was all the rage.
Additionally, the relentless decline in paper generation (and thus the higher margin recycled commodity supply), combined with the growth in plastics and the increase in glass, often as a result of diversion programs, further complicates and/or dims recycling economics.
All that said, single stream still remains the key to getting the higher volumes necessary to improve the economics.
Interestingly, the kick-off recycled commodity education session, which typically focuses just on paper, was a combined paper and plastic session this year. “Paper and Plastics Markets: Where’s the Market Going?” noted recovered paper expert, Bill Moore, of Moore and Associates, remains positive on the outlook for old corrugated cardboard (OCC) this year, despite an up and (lately) down start to the year. Based on tight supplies and additional mill capacity coming on line later this year, he believes that OCC pricing will rise again in the summer before plateauing in the fourth quarter. He still believes OCC pricing will end up roughly 10 percent this year from 2013 levels.
Patty Moore, of Moore Recycling Associates Inc., noted the higher price strength in different grades of plastics, such that if plastics can be better sorted, the value rises from $20 per an unsorted ton to as high as $271 per ton if it can be separated into its constituent streams.
Organics—Has Legs but Less Buzz
Reflecting the continued high level of interest in organics diversion, particularly food waste, WasteExpo’s two education tracks on the subject were very well attended. Nevertheless, the subject was “the buzz” last year, and that has seemingly settled down.
But the announcements of higher diversion and/or zero waste programs, both corporate and municipal, keep on coming, so the focus remains on food waste as the next diversion frontier, given its very low recovery rate versus its high percentage of the overall waste stream, and despite collection cost and processing facility issues.
At the “Food Waste Collection and Recovery” education session, Paul Degnan of E.L. Harvey & Sons spoke on food waste diversion in the commercial market, where he noted that although E. L. Harvey is striving for cost neutrality, food waste diversion probably adds closer to 10 percent to overall costs.
Janine Ralph of HDR Inc. spoke about Ontario Canada’s food waste diversion experience, where anaerobic digestion (AD) processing is much more common. However, she also noted that even in Canada, with its higher average tip fees than in the U.S., AD all-in processing costs remain well in excess of landfill disposal costs.