As much as we’d like to think that recycling is all about saving the planet, it is still inextricably linked to certain economic realities. And right now, the economic reality is not very rosy. Prices of basic commodities, most importantly oil, are down across the board, making raw materials cheaper than recycled ones. Prices for new plastic alone have fallen 20-30% since last year, providing manufacturers with a plentiful supply of cheap plastic with a more consistent quality than recyclers can usually provide. The average price for all other commonly recycled commodities has dropped 14% in just the first quarter of 2015.
This has forced many recyclers to scale back their operations through plant closures and layoffs in order to weather the pricing slump. The largest recycler in the country, Waste Management, has had to close four of its recycling plants over the past year in order to stem a $70 million loss in recycling revenue. These are big changes for a company that usually generates 10% of its annual $14 billion revenue through recycling. Most other companies in the waste industry have had to make similar decisions, putting a halt to operations and storing what recyclables they can until prices start inching back up.
The American Oil Rush
The one commodity that holds the biggest sway in the recycling industry is crude oil. Plastic is used in so many consumer goods that even a little fluctuation in its price can determine where manufacturers get their materials from. Unfortunately for recyclers (but great for drivers) oil has dropped dramatically in price, from a high of $115 a barrel last June to a low of $48 a barrel in January.
There are a couple of reasons for this Shell®-shocking collapse in prices. First, the explosion of shale oil & gas here in the US has significantly reduced oil imports, leading to a surplus on the world market. Secondly, everyone’s favorite energy bloc, OPEC, has declined to curb oil production in the belief that lower oil prices will shut down those very same fracking projects that have reduced American dependence on foreign oil. But such thinking might be slightly flawed because, as The Economist points out, the fracking industry is dominated by small companies working small projects that, unlike “Big Oil” operations, are very flexible when it comes to supply and demand.
The China Connection
Recyclers dealing in aluminum cans and other scrap metals are also facing low commodity prices. Aluminum, typically the most lucrative recycled metal, has dropped in price roughly 14% since November, enough of a dip to prompt manufacturers to seek out raw aluminum instead. This particular price drop is mostly attributed to flagging growth in developing countries, most importantly China, whose meteoric rise over the past decade has created a huge demand for scrap metals and recycled plastic. But China’s economy is now maturing, and its growth rate is stabilizing, reducing the growth of the recyclables trade.
Prices for recyclables have also been affected by Operation Green Fence, a Chinese initiative to improve the quality of recycled imports. The program, enacted in 2013, requires inspection of every shipment of recycled goods entering the country. Those that are contaminated, i.e. filled with too much trash and food waste, are turned away. This has forced recycling companies here in the US to invest in better equipment and personnel to keep contamination low so they can get their shipments past Chinese authorities. China has also started imposing storage fees on shippers as they wait for inspection, all of which has served to bump up the cost of doing business in Chinese ports.
Tis But a Scratch
Of course, none of this is new for recycling companies. The global recession of 2008 cratered commodity prices as consumer spending and investment tanked, and waste generation decreased from 256.5 million tons in 2007 to 250.4 million tons in 2011. Yet the amount of recovered waste actually increased by 3 million tons during those four years, proving that even in a down-market the recycling industry can persevere. And like any other industry, where there’s a bust, there’s a boom sure to follow.