As Prices Fall, Recyclers Add Clean to Being Green

China shuts export door, so firms learn to take trash out of the material stream

By Sarah Campbell-Miller
SCampbell@ABPG.com

Recyclers doing business in Arkansas are educating customers, reworking contracts and focusing more on customer needs as the industry reels from low prices and the loss of a huge market.

What happened? The problems started in January 2018 when China changed its policy on contamination — the percentage of trash mixed with recyclables. Contamination occurs when customers mix in thing that technically are recyclable but are not accepted by the recycling company that serves them.

China, which had imported commingled recyclables in just about any condition for years, won’t take loads now unless they are at least 95.5 percent uncontaminated, according to George Wheatley of Houston-based Waste Management. A 20-year recycling industry veteran, he serves as senior manager of market planning for the company’s Arkansas-Tennessee-Alabama-Kentucky market. Wheatley said China wants to plant its own forests to produce its own fiber, necessary for packaging for all the Chinese-made goods Americans buy online.

Wheatley said Waste Management’s average contamination is about 30 percent, so what China demands is “almost impossible” for the company to achieve. For that reason, some industry voices say China has effectively banned recyclables from the United States.

This year, Waste Management hasn’t shipped anything to China. Last year, it sent one load. In 2017, before the policy change, 40 percent of the material it collected went to China, Wheatley said.

The company has turned to a few new markets — Malaysia, Vietnam and India — but “those markets are not anything like the growing market that China was in the last 10 or 12 years,” Wheatley said.

A Ripple Effect

China’s move sent a shock wave through the market, hurting even ventures that didn’t sell recyclables to China, like Natural State Recycling of Little Rock. (Arkansas Business Publishing Group is a Natural State customer.)

“Being in central Arkansas, we never exported to China; we always had domestic homes for our materials,” said co-owner Randy Pierce. But “when China stopped accepting materials, it just flooded the domestic market. So we saw domestic prices take a dive.” Plastic bottles, for example, sold for 25-30 cents a pound a few years ago; now they sell for 18-19 cents a pound, he said.

Wheatley said that mills were so overrun with material that they couldn’t process and repurpose it all. So mills demand less material, and better quality. “Not only was the recycling industry needing to get cleaner, but now, because of the glut and the supply-and-demand theory, the value of materials went down dramatically.”

The industry is trying to build more mills and it is “burning the midnight oil” to make automation better at sorting
material and cutting contamination.

Waste Management has already invested more than $1 billion in processing infrastructure, according to its 2018 Sustainability Report.

For now, what a nearly 100-year-old company like Natural State can do is clean up its recyclables and rely on the relationships it has with customers. “The biggest thing [Natural State has] done is really try to make sure the product that we have is extra clean, so to speak, so we’re doing a better job of making sure materials are presorted before we send it into the mills, that it’s really clean,” Pierce said. Pierce declined to disclose Natural State’s average contamination rate but said it is less than recyclables from curbside and other residential sources because most of his company’s recyclables come from businesses.

Natural State has an advantage, he said, in that though uses some automation, everything is hand-sorted before it leaves the company’s facility. Still, in a buyer’s market, some mills want to pay nothing for loads that recycling companies pay to transport. Fortunately for Natural State, “the prices aren’t good, but we can still move it,” Pierce said. “We try not to give away anything for free. We’ve managed to hang in there, like any good business would. We try to control costs on the front end. We obviously work with all our customers. The good thing is they understand the business as well. Most people understand that the prices have dropped and that it’s not what it was five or six years ago. We’re just trying to clean it up, find new homes for it. We have found some very good partners we work with.”

Contracts Renegotiated

The company took a look at its contracts across the United States and Canada to “try to get them in better shape financially because [it was] not prepared for this type of downturn in the entire recycling industry,” Wheatley said. Reworking contracts has helped offset lost revenue for Waste Management. According to 2018 earnings the company reported earlier this month, revenue from the company’s recycling business fell by $197 million year-over-year.

In central Arkansas, Waste Management has renegotiated curbside recycling contracts with the cities of Little Rock, North Little Rock and Sherwood. The new contracts, which all three cities have approved, increased the rates per household to $4.14 per month, up from $2.99 per month. The new rates are effective April 1.

Wheatley said that gives the company two more years of “financial relief” that it will use to address contamination. It has started a campaign called “Recycle Often, Recycle Right” to educate recylers on how to best reduce contamination.

Cutting contamination is also important because the loads that mills reject for being too contaminated end up in landfills, loads that can cost Waste Management more than $33,000 per month in processing, transportation and other related costs, Wheatley said.

Educating Customers

Better educating customers was also how Republic Services of Phoenix reacted to the downturn in the industry, according to Louise Roitz, sales manager for the company’s Little Rock division. Republic, a publicly traded company, reported its full year earnings earlier this month. Its recycling processing and commodity revenue decreased by 44 percent, to $298 million in 2018 from $539 million in 2017.

Natural State is a partner, processing mixed paper, corrugated cardboard and plastics for Republic, which has residential, commercial and industrial lines of business.

Roitz said that Republic’s education efforts had led to a decrease in contamination.

The company’s corporate office told Arkansas Business that it sees an average of 30 percent contamination across the country but doesn’t record a rate specific to Arkansas.

Also, like Waste Management, Republic has rewritten contracts.

The company does something else Roitz said is unique in the industry: It provides a waste assessment to business customers. The goal of the assessment is to match those customers with the appropriate recycling programs that Republic runs so recycling isn’t something that costs the businesses a lot of money.

But that has become more difficult, because of the low prices, because there isn’t much of a market for certain goods and because some businesses don’t recycle enough for Republic to break even or make a profit without charging a fee.

Fortunately for Republic, “with our customers, I’m not going to say it’s always a financial decision. A lot of times, it comes from a pure sustainability” point of view, she said.

Overall, Roitz said, the downturn in the recycling industry has caused Republic to focus even more on meeting the needs of its customers.

For now, her company is taking a “wait-and-see approach” to what lies ahead, while veteran recycling professional Wheatley is optimistic about the industry’s future.

“I feel probably about as good about it right this minute as I ever have,” he said. Our company continues to invest and do research and development, to come up with every type of way to educate and publicize and preach.”

What I like about Waste Management is that, in the midst of all this, we have dealt with it. We have dealt with it head on. We’ve turned the corner and are not losing a lot of money as a result of what China’s done to the recycling industry. We’ve got good contracts.”