Economy encourages efficiencies
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Sedona Recycling in Arizona reports a lack of manufacturers in the western United States utilizing recycling materials in their products.

The bad economy is forcing recyclers to become more efficient. “We learn to do more with less,” said Frank Cozzi, partner at Cozzi Enterprises, Inc. in Burr Ridge, Illinois.

Volumes at the management consulting company’s metal recycling facility in Glendale, Arizona dropped by 35 percent in November compared to the same month during 2007.

“Business for the entire year was not bad, but the last quarter will be off significantly,” Cozzi said about the ferrous and non-ferrous recycling business. He said the state of the overall economy has lead to a drop in price and demand for all scrap commodities.

Pricing of ferrous scrap was down 78 percent from earlier in 2008, Cozzi said. Non-ferrous metal pricing, in most cases, was also down approximately 60 percent.

While most of the company’s consulting clients in the scrap industry have already been through two or three rounds of layoffs, Cozzi said his recycling facility has avoided layoffs. “But, I anticipate laying off up to 40 percent of our workforce in Glendale,” Cozzi said.

Cozzi said he expects modest pricing improvements in 2009. “Short term, the biggest issue facing the scrap industry is the absence of demand for our products,” Cozzi said.

The outlook is not much better for tire recyclers. Gary Champlin, general manager at Champlin Tire Recycling, Inc. in Concordia, Kansas, said he expects 2009 to look like 2008. “I expect some negative impact on revenue due to the overall health of the economy,” he said. “The biggest issue facing recyclers is the extreme swings in commodity pricing.”

Champlin Tire Recycling offers full-service tire recycling, including pickup, transportation and processing. It operates a plastic extruding plant and a tire processing, retreading and reclamation center, processing more than four million tires annually.

Tire flow into the center softened in the last quarter of 2008, according to Champlin. But he said thats typical in the fourth quarter. Business overall is up, he said, mainly due to an increase in finished product sales, including park benches, picnic tables, mulch and playground material.

One of the biggest problems facing Sedona Recycling, Inc. in Sedona, Arizona, is the lack of manufacturers in the western part of the United States willing to utilize recycled products, said Briana Sternberg, who works on education and community outreach for the non-profit recycling center that serves Sedona and the Verde Valley with 13 public recycling drop-off sites.

“There is diminishing demand, forcing recyclers to ship materials hundreds or even thousands of miles, only for the end product to then be shipped the same distance back,” Sternberg said. “If there were mandates on corporations to use a minimum percentage of post-consumer content, it would keep the demand alive to use the abundance of material available.”

Sedona Recycling accepts all types of paper, corrugated cardboard, plastics, aluminum cans, steel cans, glass bottles and jars at their material recovery facility.

Volumes remained flat throughout 2008, Sternberg said. Total revenue collected for November, however, dropped to $16,543 compared to $31,825 in October. September hit an all time record for the center. Revenue reached $66,744. During the previous eight months of 2008, the monthly revenue generated by collecting recycling ranged from $41,597 to $53,300.

“It’s hard to say what we can expect in terms of material prices, because that is all dependent on the global economy and the rate of manufacturing,” Sternberg said, noting that while some are predicting a turnaround in just six months, others are saying it could take longer.

“So far, we have been able to keep our entire staff intact,” she said. Most of the employees were able to cut a few hours and salaried employees took small pay cuts so that no individual would have to be let go. “For now, the cost cuts we have made are enough, but we can only operate at a loss for so long before the board will have to make further cuts,” she said.

The drop in recycled commodity prices has also impacted recycling efforts at Harvard University. Rob Gogan, manager of recycling and waste services for the university, said he budgeted to receive $30,000 in revenue in 2008 and now expects to pay $25,000 for the year.

The university’s facilities maintenance operation collects basic recyclables, computers, mercury lamps, pallets, scrap lumber, scrap metal, food scraps for composting, animal bedding for composting, landscape reuse for composting and trash. It uses dedicated contractors with rear-load compactor trucks to pick up the bulk recyclables, trash and compostable material.

While recycling at the university increased by 0.71 percent in late 2008 compared to the same period in 2007, Gogan characterizes prices for all recyclable commodities as “poor”.

Finding storage for the scrap commodities until demand returns and prices recover is another issue facing recyclers, said Bruce Parker, president and chief executive officer of the National Solid Wastes Management Association, a trade group based in Washington D.C.

“Finding sufficient space is not easy. Storage space rental is not cheap, insurance is a cost, as is transportation to the facility,” Parker said, noting that while recyclers can use outside storage for plastics and scrap metals, newsprint and cardboard need to be stored inside.

“I imagine that for smaller recycling operations the greatest challenge is to stay in business until demand returns,” Parker said. “We likely will see recycling surcharges, as was the case with fuel surcharges, and efforts to renegotiate contracts for some price adjustment.”

Global demand for manufactured goods is experiencing a major decline, thus severely reducing the need for the recyclable commodities, Parker said, adding that the current economic meltdown underway is more severe, and is likely to last longer than previous down cycles.

“No one really knows what 2009 has in store for the recycling markets because a lot depends on President Obama’s economic stimulus packages and how quickly, if successful, they will pump liquidity back into the economy and stimulate consumer spending,” Parker said.

The demand for most recyclable commodities is down because of oversupply in the system, Parker said.

In Milwaukee, for example, newsprint was selling for about $157 per ton earlier in 2008 and dropped to $35.27 per ton in November. Things like milk containers, classified as #2 plastic, was $880 per­ ton in September but dropped to $260 in November. Parker said it is important for recycling programs to continue.

“First, it is very hard to restart a municipal or other local government recycling program,” he said. “Second, in many situations, the cost of recycling a ton of material may be less than disposal, even now when the price for recyclables is extremely low. Last, there are the environmental benefits, because recycling contributes to reducing our energy needs and greenhouse gas emissions.”

Scrap commodities have seen declines in prices across the board. Declines in scrap non-ferrous metals range from 30 percent for tin to as much as 60 percent for items like lead and nickel. “Nothing has escaped the declines,” said Bob Garino, director of commodities for the Institute of Scrap Recycling Industries, Inc., a trade association based in Washington D.C.

But this current environment will not hurt recycling in the long run, he said. “I think what we are seeing is a cyclical downturn, which is made up of a larger secular uptrend. The growth is there longer term. Within that longer term growth we are going to have ups and downs.”

Garino said that some recyclers have planned for the current downturn. Therefore there may be some opportunities to buy struggling competitors. “You may see more consolidation within the industry,” Garino said. “There are always opportunities. It is not always bad.”