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News Analysis: Recession Trashes Market for Recyclables

Economic downturn makes recycled materials no longer competitive in market

John Kalkowski, Editorial Director -- Packaging Digest, 1/12/2009 11:00:00 AM

Just six months ago, the use of recycled packaging materials was flying high. End users were demanding post-consumer waste be included in their packaging as part of their sustainability efforts. Even though prices for recycled commodities such as corrugated, plastics, paper, steel and aluminum were at all-time highs, they were competitive with virgin materials. Recyclers were actually making a profit— enough to share the wealth with municipalities that helped collect the materials.

Then, at the end of 2008, it all came crashing down.

Virtually overnight, prices for these materials dropped 70 to 90 percent, depending on local markets. It had been estimated that nearly a third of all materials collected for recycling were being shipped to China, where it was being reprocessed and made into new packaging for all the products being shipped back to the US.  That came to a screeching halt as consumers simply stopped spending, and demand for many imported items simply dried up.

Now there has been a spate of stories across the country lamenting the situation. Recycled-plastic bottles have gone from 25 cents per pound to 2 cents per pound. Old corrugated containers have dropped from nearly $110 per ton to $10 per ton— if it can be sold at all. Inventories are building up at recycling centers, warehouses and docks. Unfortunately, many of these materials are likely to end up in landfills, where their potential for reuse will be buried.

Why does this matter?

While America’s converters struggle to stay solvent, it would seem that any reduction in materials costs would be a boon to the industry. However, that may not be the case.  The run-up in materials prices due to higher energy costs earlier in 2008 occurred so quickly that many packagers simply couldn’t pass the costs on to consumers fast enough.  That’s what has made recycled materials a viable alternative.

Recently I was told that when we use our limited natural resources wantonly, we are not spending an inheritance from our parents. Instead, we are borrowing from our children’s future.

A recent article by the American Chemistry Council on the economic realities of recycling says that the ultimate success of recycling depends on stable, reliable markets for the materials. It goes on to state that without markets to purchase collected and separated recyclables, recycling simply won’t happen.

End-use markets purchase recycled as well as virgin materials and use these materials as feedstock to manufacture new products. “Recyclable materials, therefore, compete for markets with virgin supplies of the same material,” the article states. “The opportunities for markets to use recycled material are often actually fewer than those for virgin material, due in part to lower performance characteristics of the recycled material because of contamination.”

An extended down cycle will likely damage the nascent recycling industry, which only recently began to attract large-scale investment in the US. In the long run, this could be a double whammy for packaging. Not only would the closure of recycling facilities be damaging to the environment, but it would deprive the industry of an excellent source for raw materials.

John Kalkowski
Editorial Director
Packaging Digest, Converting

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