At the end of January, I spoke on recycling markets at the Connecticut Recyclers Coalition Annual Conference. I never uttered the word “pandemic”. So much for my predictive abilities.
In spite of that, they asked me to do a webinar at the end of this month on the pandemic’s impact on recycling markets. Much of its impact on the industry is well known. Residential trash and recyclables are up, commercial trash and recyclables are down. Because businesses, as a whole, generate more of both, overall waste and recycling generation are down. Due to social distancing and other requirements, MRF workers are being separated and line speed has slowed. Worker shortages have been a problem for some collectors and processors.
Our waste and recycling streams have changed because what we buy has changed. We shop online more because so many physical stores are closed. Our use of grocery delivery is up by 400 percent, after spiking at 560 percent. Delivery of meals from restaurants is up 50 percent. At the same time apparel sales are down 46 percent. I don’t think face masks are included in that category, but they are in demand now. Sales of office supplies went up by six percent because many office workers now work from home.
Perhaps most importantly, consumer spending peaked on March 11 and was down 25 percent by May 12 (see here for a fascinating look at these changes). As we have less money to spend, we will inevitably buy fewer things.
The pandemic has accelerated changes in the paper products we buy. Office and school closures have lowered demand for printing and writing paper to the extent that 20 paper making machines are taking downtime in this quarter. Packaging paper, however, is surging. Increases in e-commerce and home grocery delivery have been very good for the box industry. Containerboard mills are running at 95 percent operating rates.
Some aspects of recycling markets remain unchanged. Recyclables are still commodities with fluctuating values. Recyclables are still bought and not sold and buyers have the same needs. They want reliable quantities of raw materials with reliable quality, at an acceptable price. Their definition of an acceptable price may differ from yours.
The pandemic has also highlighted the reliance on container deposits by recycled PET, aluminum and glass end markets. Deposits produce raw material in reliable quantities and with reliable quality. Those supplies have been temporarily shut off by redemption suspension in the deposit states.
As for prices for recyclables, we have a mixed bag. The booming need for corrugated boxes has substantially raised old corrugated container (OCC) prices. Those higher prices have lifted residential mixed paper prices. The margin between the two is easily enough to entice MRFs into spending the extra time and money to separate boxes from residential mixed paper.
Ironically, the higher prices are not good for the mills that rely on OCC as a raw material. Their 2020 procurement planning did not anticipate the pandemic and the higher demand for their product. They are not thrilled about the higher new prices they are paying. In addition, the quality of OCC from commercial sources is always better than that from residential programs. When offices reopen, commercial sources are likely to again take precedence. If demand for consumer products fall as our financial belts are tightened, prices for OCC and mixed paper will also fall.
Prices for metal and plastic recyclables continue to slide. Supply has exceeded demand for metal cans for over a year. As for recycled plastics, falling prices for virgin resin lead to falling prices for recycled resin. I don’t see much hope there. The brands who made highly publicized commitments to increase their use of recycled content in packaging need to come to the table and start honoring those commitments. But how much more can we realistically expect them to pay for recycled resin?
Uncertainty is the biggest problem in predicting the pandemic’s impact on recycling markets. We are in uncharted waters. Prices going up and down for recyclables is old news. But this time a virus is responsible. That is new news. Uncertainty is the order of the day.
- How long will the pandemic last?
- When will a vaccine be developed?
- When will businesses and offices and schools reopen?
- Will the economic recovery be “V” or “U” shaped or will it be more like the swoosh that characterized our recovery from the Great Recession? In that case, gross domestic product bottomed out early in 2009 but took two and a half years to return to its 2008 peak before the recession began (see here for a look at the different ways the economy could recover).
If I had the answers, I would give them. At Berkshire Hathaway’s annual meeting earlier this month, Warren Buffet said “I don’t believe anybody knows what the market is going to do tomorrow, next week, next month, next year.” Uncertainty is our reality, but it is not a safe harbor.
Let’s accept that reality. Enjoy the current high prices for OCC and the better pricing for residential mixed paper. After all, paper is the biggest item in recycling bins. Expect changes when businesses and factories reopen. And let’s not waste this unique opportunity to rethink recycling. Let’s take a hard look at what we are trying to achieve with our recycling programs. Are higher recycling rates our goal or lower greenhouse gas emissions. We can’t have it both ways, but let’s seize the time and figure out how to get the best of both.
As for how all this plays out for recycling markets, I’ll let you know in a year.
BTW If you would like a copy of the power point and speaker notes I used yesterday in Connecticut, send me an e-mail and I’ll send them to you.