Warehoused bales of reclaimed cardboard awaiting recycling. Image credit:Pulp and Paper Canada,
Over the past few months, the abrupt drop in prices for recyclable materials has taken many by surprise. Now questions are arising about the causes of the price drop and also how these lower prices are impacting residential and commercial recycling programs. A recent New York Times article touches on these points.
So why the new rock-bottom prices? One major reason is that the worldwide economic downturn has seriously slowed down the production of consumer goods and, as a consequence, the demand for recyclable materials such as fiber, plastics and metals has slowed as well. For example, fiber is the largest recyclable material in the waste stream, yet a large number of paper mills in the U.S. are temporarily closing and reducing the amount of fiber they purchase. Other mills overseas also dramatically cut back on their fiber purchases. Like other commodity businesses, recycling markets are consistently changing and have to operate under supply and demand. Waste Management has been in the recycling business since 1971 and we’ve witnessed ups and downs in the market for recycled materials. For example, we saw recycling markets rise and fall in 1994/1995 and then again in 2000/2001. This current cycle actually saw prices rising from 2003 until the middle of 2008. This cycle, for the most part, has been a lengthy and positive run, largely because of increasing our country’s exports of recycled goods to countries like China, India and South America.
Of course, this positive pricing run has dramatically slowed down. When it comes to selling recycled materials, companies can sell them in two ways: via long-term contract or through the spot market which is the price for a commodity on any given day. It is this latter group that is particularly feeling the pinch of reduced volume demand and prices for recyclable goods.
What does a company do that can’t sell these recyclable materials?