Developing Markets for Recyclables

Municipal recyclers were often criticized in the industry’s early days for collecting recyclables without regard for whether there were end users interested in consuming these materials. But in the last few years, numerous initiatives have been undertaken to develop markets for recyclable materials of all kinds.

Some of these initiatives have worked better than others. For a while, a trend toward recycled-content legislation seemed to assure a place for many recovered materials. However, recent developments have overturned or threatened some of this legislation. Currently stepping to the plate are state-funded programs and non-profit organizations working to lend recyclers a hand with investment incentives, technical assistance and market development.

MATURING INDUSTRY

Developing markets for recycled material is a long-term endeavor, according to Bill Heenan, president of the Steel Recycling Institute, Pittsburgh. “It took more than 100 years to develop the steel recycling infrastructure that is in place today,” he says. “Now, you can’t make new steel without using recycled steel. The demand is built into our technology.”

With other commodity markets, the infrastructure has not been in place for as long, and plastics recycling is still in its infancy. “The companies that are using recycled materials from these markets started out as small firms, but know they are maturing and increasing their capacities to use recovered material,” says Phil Bailey, director of market development for the National Recycling Coalition, Washington. “They are becoming more effective in marketing and distribution, and doing the things that regular companies do to survive.”

When many of these companies first entered the market they made the mistake of touting the recycled content of their products, and not the functionality, according to Bailey. “They did not apply the fundamentals of price, usefulness, and all the other qualities that help sell a product,” he says. “Now, these same companies, and the newer ones have learned that recycled content is really secondary in the market.”

Companies are now showing the consumer that products made with recycled content are of high quality, and just as good as those made with virgin materials, says Bailey.

Image Industries, Armuchee, Ga., is a good example of this trend. Ten years ago, the company began phasing recovered feedstock into its carpet manufacturing operations. Today, nearly 100 percent of the company’s carpet is made from post-consumer plastic. “We would not have made the conversion if it were not profitable for us,” says John Richmeier, director of technical services for Image. “Our carpet is competitive with all the other brands, and we have the side benefit of helping the environment. Also, we are not at the mercy of the big chemical companies that control the virgin resin market. It did get tough in 1995 when post-consumer resin skyrocketed in price, but we hung in there.”

But on the recycling side, the current downturn in the plastics market is testing everyone’s commitment to plastic bottle recycling, according to Alan Logan, glass and plastic purchasing agent for Ensley Corp., North Canton, Ohio.

Logan is working closely with manufactures to ensure that they understand the pressures recyclers are facing in the market right now. “A lot of manufacturers are wrestling with the problem of going strictly by price when purchasing feedstock, or being environmentally conscious and staying with recovered material,” he says.

In the recovered paper arena, the demand for paper with post-consumer content and the favorable economics of processing recovered paper have pushed a number of paper mills to build new deinking plants.

Currently, more than 400 mills in the United States consume some amount of recycled fiber. “In 1995, 45 percent of the paper consumed in the U.S. was recovered, and 24 percent of that was exported,” says Carlos Rovelo, director of market development, southwest region, for Rock-Tenn Recycling, Dallas. “The U.S. pulp and paper industry has set a 50 percent paper recovery goal for the year 2000, and citizens and businesses have become partners in this endeavor. Technological innovations in how we collect, process and manufacture new products using recovered materials are constantly being developed.”

LENDING A HAND

While many recyclers are trying to meet consumer demand for recycled-content products and packaging, several non-profit and state organizations are also working to give the recycled material market a boost. One of those entities is the Buy Recycled Business Alliance, a project of the NRC. The alliance began four years ago with only 20 members, and now has more than 2,400 member companies, all of which have made a commitment to buy products with recycled content. Last year, Alliance members purchased a total of $9.6 billion worth of recycled-content goods. There are currently about 4,500 products on the market in the U.S. made with some amount of recycled material, according to NRC officials.

In addition, NRC’s recently formed Recycled Content Manufacturers Work Group is looking at ways to overcome consumer and retail store management and staff unfamiliarity with new recycled products, and to identify the most effective ways for new and expanding recycling businesses to enter the market.

State and regional associations are also finding ways to help recyclers open markets. “We don’t want to throw money at a problem, but instead to act as facilitators,” says Michael Alexander, policy analyst with the Northeast Recycling Council, Brattleboro, Vt. “For instance, we can go into a company that manufacturers plastic goods, and show them how to retool to accept recycled material and how they can save money.”

In New Hampshire, recyclers pressured state officials to build stronger markets for recycled products, and the Waste Management Division responded by hiring a full-time recycling market development specialist. The New Hampshire Legislature also established a permanent market development steering committee and has held several recycling roundtables. The committee is looking at regulatory issues that hinder recycling and increasing state procurement of recycled-content products.

Further west, a Recycling and Reuse Business Assistance Center has been in place in Minneapolis for more than a year. Included as part of the center is the Recycling Market Development Program which focuses on the wood fiber, plastics and composites industries because of the types of products these industries make – products such as boat hulls, truck tops, plastic bags, playground equipment, plastic lumber and hardboard for furniture backing. These are industries that lend themselves to the use of significant amounts  of secondary materials.

“We are trying to capture the economic value of recycling,” says the center’s Tim Nolan. “To be effective, recycling has to mean more than simply pulling materials out of the waste stream. We have to demonstrate that the materials have value in the economy.”

North Carolina has also has a Recycling Business Assistance Center, and last year conducted a study of recycling markets in the state. The study showed that the fastest-growing recycling firms in North Carolina are those that use recycled materials in the manufacturing of new products. The study also revealed that access to capital, cash-flow problems, lack of markets and environmental regulations were the four primary obstacles to growth.

INVESTING IN RECYCLING

There are initiatives in place to deal with two of those obstacles – lack of capital and cash-flow problems. Some state agencies and municipalities have loan programs. Most notably, the California Integrated Waste Management Board, Sacramento, Calif., has devised innovative ways to get money to recyclers that need it, and has established recycling zones that give recyclers special tax breaks. Arizona and Utah, among others, have followed California’s lead.

In other areas of the country, regional recycling investment forums have sprung up to match private investors with recyclers. Investment forums have recently been held in the Northeast and Southeast. Follow-on forums are planned in those regions in 1997, along with a new forum for the Midwest. Kirkworks, Durham, N.C.; the NRC; and local recycling agencies are sponsoring these forums.

“What we are trying to do with the investment forums is to marry recyclers with potential investors,” says David Kirkpatrick, principal of Kirkworks. “We play matchmaker – we don’t help close deals. It is up to the recyclers to do the work.” The forums are also important because they make investors aware that recycling start-up firms exist, and they give these start-ups the opportunity to present their business plans and make contacts.

“The biggest issue for recycling businesses, and for any small business starting out, is access to capital,” says Kirkpatrick. “And that is a concern because normally that is where the most innovation is – in the start-ups.”

New businesses usually need about 30 percent equity to start, and most of that comes from personal equity – an owner putting in everything he or she has. Many times, however, that is not enough, according to Kirkpatrick. Outside investors are still needed.

Based on what he has seen so far, Kirkpatrick advises recyclers looking for investment capital to research their market thoroughly. “The most important thing investors want to see is where the market is for the end material,” he says.

On the consuming end, there is a need for special financing and investment for manufacturers that wish to use secondary materials as feedstock. To assist with this, the Clean Washington Center, Seattle, is putting together an investment fund program for manufacturers who want to convert to using recycled materials.

“We have found that there are roadblocks for companies wanting to get financing to make conversions to using recycled feedstock,” says David Dougherty, executive director of CWC. “It’s mainly because lenders don’t understand the dynamics of the recycling industry. What we’re doing is attempting to educate banks so that they look at these situations in a way that is different from how they would normally qualify a company that is asking for a loan. And we are establishing a special fund that companies will be able to tap into for developing markets for recycled material.”

CWC, which has also been designated as the National Center for Recycled Technology, also provides technical assistance to manufacturers to convert to using recycled feedstock.

ARE MANDATES NEEDED?

There’s an ongoing debate between those in favor of recycled-content and recovery mandates, and those against them. On one side, there are those who say that legislation is needed to help further develop the recycling infrastructure. And there are those that say the market will take care of itself.

“In the Northeast, there are very few recycled-content laws,” says Alexander. “I am not going to state a case for or against mandates, but I think recycled-content laws are in place to jump-start the use of recycled materials, not subsidize it. Also, we realize that any realignment by manufacturers to use recycled material has to be cost effective. The ultimate goal is not to have mandates, but to improve the efficiency of the entire recycling infrastructure.”

Mandates should not be viewed as inflexible, says Mark Murray, executive director of Californians Against Waste, Sacramento, Calif., but as market-based. “A recycled-content mandate ensures that there is an end use for the material, but gives the manufacturer enough flexibility to remain profitable,” he says. “The recycled-content mandates currently in place in California are minimum standards. Most manufacturers are well above that, but we need to keep the minimum to ensure that there is responsibility for the recovered material.”

Without mandates, taxpayers are subsidizing industries to use virgin materials, according to Murray. “The cost to use a certain material should reflect the entire closed-loop process,” he says. “When that happens, we will see the true cost to package a product, and we will relieve the taxpayer of the responsibility to pay for the proper disposal or recycling of that container.”

Recycled-content legislation is helpful in kick-starting markets, but problems arise when the legislation limits the reuse of recovered material, according to Dougherty. “When you mandate recovered plastics from containers to go back into making containers, you are limiting the uses for that material and it cannot be used for higher-end applications,” he says.

COLLECTION CONCERNS

The collection of post-consumer materials is now under more scrutiny than ever before, as municipal budgets tighten and cities and towns look for the most cost-effective ways to manage their collection programs. This, combined with poor market conditions for some materials, has resulted in cities occasionally dropping certain items – especially plastics, which are lightweight and can be costly to handle and process – from their collection programs. Observers warn that if this types of trend develops, it won’t matter if there are markets for recyclables because the materials needed to support those markets won’t be available.

However, the recycling industry may simply be experiencing a period of collection adjustment, according to NERC’s Alexander.

“Collection efforts are changing, and that means that others are going to have to step up to the plate,” he says. “We are going to start to see more diversity in who will be doing the collecting of materials and how those materials will be collected. When we talk about developing markets for recycled materials, one does not normally think about the collection end, but it is certainly related.”

Companies such as Image Industries, which has developed a strong supply network for its recovered feedstock, rely on municipal collection efforts. “Any municipality that drops plastic collection from its program is very short-sighted,” says Richmeier. “If they are doing it because of poor revenues, all they have to do is look at last year. Sure, the pendulum has now swung the other way, but we feel it will swing back to a better level. The demand for recovered plastic is growing.”

NRC’s Bailey agrees that municipalities should not give up so easily on the collection end. “Collection is not always going to be cost effective, and markets in some areas need time to establish,” he says.

“Recycling is a public service, and the public wants it. Studies have shown that people are willing to pay a couple of extra dollars to have material picked up at their homes. We need to be consistent with our recycling programs; we need to continue to educate everyone on the value of recycling; and we need to stay on course.”

 The author is managing editor of Recycling Today.