The role of recycling in growing the economy

Jerry PowellResource RecyclingPortland, Oregon

www.resource-recycling.com

What we’ll look at today

• Changes in recycling markets through the decades

• An assessment of where markets might be headed

• A display of the regional opportunities at hand for economic growth through recycling

• Questions and (attempted) answers

Recycling markets

A history of U.S. recycling markets over the past three decades would focus on:-- market growth, especially globally-- the removal of much of the market’s volatility (except for late 2008)-- domestic market contraction-- investment and consolidation

Recycling market growth

In many ways, recycling has moved from being a green, niche market to a fundamental way to acquire raw materials. This growth has been aided by:-- technological innovation, such as deinking-- rising disposal fees-- growing scarcity of virgin raw materials

Recycling market growth

Examples of technological innovation:-- from corrugating medium to linerboard-- bottles-to-bottles plastics recycling-- optical sorting of plastics and glass-- recycled plastic decking products

Total MSW generation (by material), 2009243 million tons (before recycling)

MSW managementin the United States, 2009

MSW recycling volumes and rate

Recycling rates for selected products, 2009

We have seen growth in collections

We have seen growth in processing

We continue to grow

Recycling’s growth

Yes, more than 10,000 communities, where 63 percent of Americans live, now collect recyclables curbside. Yes, 193 million Americans can set out recyclables weekly.

But our progress has slowed.

Recycling rates have flattened out.

UBC recycling rate

HDPE recycling rate

PET recycling rate

Paper recycling rate

Steel recycling rate

Less market volatility

The value of recyclables has risen over time:Material 1990 2010ONP and OCC $40-$60 $130-$160Aluminum cans 30-40 cts 70-90 ctsPET bottles 10 cents 30 cents

Less market volatility

At the same time, recycling’s price moves are less severe. What explains most of the growth in recycling markets over the past two decades and the rising level of market stability? Hint: It’s a five-letter word.

Less market volatility

We have seen a fundamental shift in critical recycling markets. The continuing rise in Chinese demand, even during a recession, has resulted in systemic changes in the American recycling market.

Plastics exports

Ferrous scrap exports

Less market volatility

Even with rising exports, recovered material pricing has been very attractive, except for a recessionary dip in late 2008.

Homopolymer HDPEbale prices

Aluminum can prices

PET bale prices

Recovered paper prices(18 grades combined)

ONP No. 8 price

Ferrous scrap prices(No. 1 HMS)

Less market volatility

So what happened in the Great Recession of 2008-2009?

Impact on exports in the first quarter of 2009

Material Volume PricePaper - 14% - 22%

Plastics + 15% - 32%

Aluminum - 40% - 31%

Ferrous Scrap + 12% - 26%

Domestic market contraction

The crunch created by high export demand has had a profound impact on a number of domestic recycling industries. We’ll look at two examples: PET bottles and newsprint.

Domestic market contraction

PET reclaimers have lost share to Chinese buyers. This is the share held by exports for bales of plastic bottles from the U.S. MRFs:

2000 22 percent2002 35 percent2004 37 percent2006 51 percent2008 57 percent2010 50 percent

Domestic market contraction

PET reclaimers are thus operating at less and less of their combined capacity:

2004 84 percent2006 86 percent2008 80 percent2010 73 percent

Domestic market contraction

The situation is far worse for recycled newsprint producers, including mills here in Tennessee.

Paper collections continue

Use of recovered fiber by U.S. paper industry sector

Recovered paper exports

2010 recovered paper market2010

Marketplace

61%

39%

2010 Marketplace

61%

39%

Versus 2009

+7.0%

-3.8%

+3.4%

Versus 2009

+7.0%

-3.8%

+3.4%

Million Tons

31.3

20.2

51.5

Million Tons

31.3

20.2

51.5

Domestic

Exports

Total

Newsprint: a serious problem

North American shipments in million tons:

2007: 12.22008: 11.22009: 8.1

2010: 8.6This is a loss of 30 percent in just three years.

Paper recycling markets:Bankruptcies

AbitibiBowater NewsprintCaraustar Paperboard

Newark Group PaperboardSmurfit-Stone Paperboard

.

Paper recycling markets:Closures

Blue Heron Oregon City, ORCaraustar Chattanooga, TNCaraustar Richmond, VACaraustar Charlotte, NC

International Paper Albany, ORSmurfit-Stone Missoula, MT

Sonoco Rockton, ILSonoco Lancaster, OH

Investment and consolidation

We are going through a multi-year period of industry consolidation. New investments are being made, especially in collection and processing, and end users are buying competitors.

Investment and consolidation

More and more recyclables will be collected and processed by fewer and fewer players. Mergers and acquisitions will continue.

The impact

Big supplier Million tons/yearReCommunity 1.0

Greenstar North America 2.0Republic/Allied Waste 3.3

Waste Connections 1.0Waste Management 8.5

The impactBig consumer Million tons/year

Abitibi-Bowater 2.0Caraustar 3.0Cascades 2.1

Georgia-Pacific 4.0International Paper 5.0Rock-Tenn/Smurfit 4.7

The impact

Steel company Processing plantsCommercial Metals 36

Nucor 58Schnitzer Steel 42Steel Dynamics 27

The impact

Paper company Processing plantsInternational Paper 33

Newark Group 11Rock-Tenn/Smurfit 37

Sonoco 17SP Newsprint 21

6: Continued consolidation

Top 50 recovered paper processors:o handle nearly half of all collected fibero operate 612 plantso average plant does 3,200 tons per month

Source: Moore & Associates, 2010.

6: Continued consolidation

Top four metal processors handle 23 million metric tons per yearo Sims: 7.2 million metric tonso OmniSource: 5.8 million metric tons o Schnitzer Steel: 5.2 million metric tons

o David J. Joseph: 5.0 million metric tons

Investment and consolidation

Consolidation and investment are changing recycling. For example, MRFs are getting bigger. As more and more large, regional, hub-and- spoke MRFs come on-line, you’ll see smaller and smaller communities moving to single-stream recycling collection.

Investment and consolidation

And more people will be provided single- stream recycling collection service:

2005 – 29 percent of the population had access to single-stream collection2010 – 64 percent had access

The future: deindustrialization

The lack of attention in the U.S. toward an industrial policy will hurt recycling. As piles of recyclables climb, states will be urged to, once again, launch recycling market development programs.

The future: deindustrialization

Only 9.3 percent of American worker force is in manufacturing.

The U.S. added 937,000 jobs in 2010, while Foxconn, China’s largest employer, added 300,000. The company now employs one million.

The future: Chinese economic growth

Recycling markets will again shift as China becomes a developed country:

-- modest return of U.S. manufacturing-- higher westbound freight rates will dampen demand for

U.S. recyclables-- investment by China in raw material production in Africa, Asia and elsewhere-- China will become much more self-sufficient in recycling

The future: Chinese economic growth

National Association of Manufacturers: “China’s challenge to U.S. manufacturing has

peaked, and its competitive advantage is in decline.”

The future: Chinese economic growth

National Association of Manufacturers: “China’s challenge to U.S. manufacturing has

peaked, and its competitive advantage is in decline.”

Chinese CRT glass processing

Resource RecyclingPortland, Oregon

Resource RecyclingPortland, Oregon

Regional opportunities

Three large opportunities exist here, especially given the strength of the region in terms of recovered fiber, plastics and metals.The first is business retention.

Regional opportunities

Ahlstron, American Tissue, AbitibiBowater, Buckeye Technologies, Cascades, Chattanooga Paperboard, Domtar, Kimberly-Clark, Kruger, Lydall, PCA, Ponderosa Fibres, Rock-Tenn, Sonoco, Southern Cellulose, Tamko, Temple-Inland

Regional opportunities

Regional opportunities

The second opportunity is to increase supply. Here are just some of the ways:-- serve more sources, such as multi-family-- charge higher tipping fees-- make recycling participants do a better job

(the 20-60-20 theory)

Regional opportunities

-- consider mandatory requirements-- consider deposits-- provide convenience, convenience and more convenience-- implement pay-as-you-throw systems-- institute MRF best practices

Regional opportunities

The third opportunity is to establish new businesses in the region that rely on recovered materials. Place recycling and composting as key elements within any economic development initiative.

Conclusion

We are far from being a sustainable practice, and more effort is required for us to move forward. That is recycling’s greatest challenge going forward.

SustainabilityEconomy

EcologyEquity

Conclusion

We are ready once again to move forward. And we must.

Energy consequences of not recycling

Material

Annual lbs per

Household

Barrels Saved per

Ton Barrels Lost

Annually

Energy Value Lost

(@$75/bbl in billion

dollars)Value per

Household

Fiber 1,821.6 1.70 85,425,000 $6.407 $116.14

Aluminum Cans 27.0 40.00 28,936,875 $2.170 $40.47

PET Bottles 39.0 16.30 28,115,870 $2.108 $23.87

HDPE Bottles 30.1 16.30 20,454,870 $1.534 $18.41

Glass Bottles 883.4 0.12 4,543,855 $.341 $3.98

Steel Cans 19.2 1.80 1,141,756 $.085 $1.30

Total 2,820.4 1.93 168,618,226 $12.645 $204.16

168,600,000 barrels or 3.5%Source: SWANA/SRI

We are sending moneyto the landfill

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Drop me a line

Jerry PowellResource Recyclingjpowell@resource-recycling.com