By Scott Bradley
A weakened Chinese economy and falling oil prices have taken recycling, which started out as a commodity-driven industry, to what now needs to be recognized as a service-oriented business, accounting for the necessary costs to support each facility.
Processing recyclable materials collected from curbside residences remains a necessary practice and should continue to be encouraged. It keeps material out of the landfill, supports local job growth and is a growing industry of its own with new methods and practices being uncovered on a regular basis. However, the business model has changed.
In the very recent past, the sole revenue sources to these facilities were the revenues associated with the sale of sorted commodities. Municipalities generally were paid a rebate or at least received the collection service for free in order for a materials recovery facility (MRF) to receive and process the recyclables.
The Chinese became the world’s largest consumer of raw materials derived from collected recyclables, and their demand for materials supported higher commodity values. As their economy shrank, the global commodity market collapsed.
For example, baled newspaper was selling for $150 per ton in March of 2008 and is selling for $40 today. The decrease in prices has resulted in a detrimental decrease in MRF revenues. Now, the revenues from commodity sales no longer cover the costs to operate a recycling facility, let alone provide rebates or free collection services.
Likewise, as oil prices have dropped to inflation-adjusted historic lows, the cost of producing virgin plastic materials became cheaper than using recovered plastics from MRFs. That low price competition from oil further exacerbated the depressed commodity market for plastics.
Coupled with municipality expectations for free collection or rebates and low commodity pricing, MRF operators are now facing a critical moment in their existence. MRF operators need a shift in the business model to survive. What this shift means is municipalities and private haulers need to adjust their expectations from considering recycling as a profit-generating practice (or free service) to a service with a cost and an associated budget. This change is necessary in order to ensure these recycling services are sustainable in the future.
The bottom line is that the benefits of recycling have not changed. If anything, the need to increase and expand these programs is magnified. The understanding simply needs to be that a financial investment is required to ensure these programs are run effectively, efficiently and, most importantly, are set up for long-term success.
Scott Bradley is the general manager of Buffalo Recycling Enterprises and Modern Corp. of Canada.