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Reduce, reuse, recover – Recycling firms cope with drop in demand

By   /   Sunday, January 18th, 2009  /   Comments Off on Reduce, reuse, recover – Recycling firms cope with drop in demand

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Tumbling global demand has hit your recycling bin.

Across the Tri-Counties, firms that sort and resell recycled goods onto the commodities markets have been hammered in recent months by a decline of up to 75 percent in the prices they receive.

The downturn in prices for cans, steel, paper and plastic has forced companies – and the local governments with whom they share revenue – to slash budgets and reevaluate the recycling business.

For months, the price of some commodities sat at zero – recyclers couldn’t sell them at all.

“[The steel market] gummed up for about 60 days, and we’ve just now started moving some steel at $80 a ton – that was up at $200 a ton last year,” said Michael Hoover, general manager of the Chicago Grade Landfill, which serves north San Luis Obispo County from the Cuesta grade to near Paso Robles.

Because it hauls the material to Los Angeles or the Bay Area, Chicago Grade never had made much money on steel. But when the price skyrocketed over the past few years – thanks largely to a surge in Chinese demand – the company budgeted in the extra revenue.

But with that money gone, Hoover had to lay off two of his 12 employees. He said he’ll likely have to charge more when his contract with the county comes up for renewal.

“The landfill hasn’t been making money for years, and we’ll have no choice but to raise rates,” Hoover said.

Up and down the Tri-Counties, the commodities and company names change, but the story remains the same.

“When it first hit, it was devastating,” said George Harrison of Gold Coast Recycling and Transfer Station, which serves much of Ventura County and southern Santa Barbara County. “[Cardboard and paper fiber prices] went from $200 a ton to between $0 and $50 dollars.”

Fifty dollars, Harrison explained, is about what it costs to separate and bale the material. “If I’m not getting paid at least $50 to $60, I’m losing on every ton,” he said.
Today, prices hover between $40 and $50, with some recent peaks above $60, Harrison said. In response, Harrison sliced nearly $800,000 from his labor budget by eliminating overtime.

“We didn’t cut any jobs,” Harrison said. “But anything that’s not necessary, we’ve gone through and cut. I’m sharpening my pencil on everything we do.”

A dry revenue stream affects more than just the recyclers. Some local governments, such as Santa Barbara County, receive a portion of revenue through partnerships with the companies.

“It’s definitely affecting our budget, and we’ll have to make adjustments,” said Mark Schleich, a deputy public works director with the county’s resource recovery and waste management division. “Whether those will be increases in rates or decreases in services, we haven’t decided.”

Even huge recyclers haven’t escaped punishment from the commodities markets. Waste Management, a $15 billion public company that provides services to Moorpark and Simi Valley, lowered its fourth-quarter share price forecast by 4 to 8 cents because of slumping commodities prices.

The company is pushing though its backlog of material and banking on demand in India and China to pick back up.

“The markets are cyclical,” said Wes Muir, corporate communications director at the Texas-based company. “We are starting to see some movement in China. We hope to see, in the not-so-distant future, a return to more sustainable pricing.”

Currency markets pinch recyclers as well. Santa Barbara-based Textile Waste Solutions resells discarded clothes to be made into industrial rags and car upholstery.

Company founder Christopher Mkpado said he works directly with wholesalers and circumnavigates the turmoil of the commodities markets. But with 50 to 60 percent of his business coming from overseas, exchange rates are eating into his business this year after helping boost it last year.

“If the dollar appreciates by 10 percent, we lose 10 percent of our revenue, or it costs our customers 10 percent more,” Mkpado said.

Textile Waste Solutions hasn’t moved any of the material it received this year. Mkpado said he’s holding out to see whether the dollar comes back down; otherwise, he’ll have to lower prices.

“The problem right now is the uncertainty – no one can predict what’s going to happen,” Mkpado said. “The best experts are confused.”

Commodities markets likely will stay depressed as long as global demand remains anemic, which some economists predict could be two years. In the meantime, local recyclers don’t want customers to abandon their blue bins. They say state help and mandates for greater recycled materials content could help.

Recyclers nonetheless urge customers to consider the first two prongs of the recycling mantra: reduce and reuse.

For now, said Nan Drake, a Gold Coast Recycling spokeswoman, “‘Recycle’ is the last resort.”

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