Editor's Focus

Consolidation has been much on the minds of scrap recyclers for the last three years.

Our cover story this month takes a look at the shifting fortunes of scrap consolidators over the last few years of the century. 1997 was a year of frenzied acquisitions in the scrap industry, and the momentum certainly carried over into early 1998. The nature of the scrap industry seemed destined to change quickly and irreversibly, with many predicting that a half-dozen or so companies would soon control a vast majority of the ferrous scrap market.

But the second half of 1998 witnessed a slumping scrap market and a strain on the balance sheets of three of the most aggressive consolidating companies. It is unclear whether the coast-to-coast collections of facilities put together by some of the consolidators will be broken up and even sold back to some of the original owners. It is clear that the number of deals slowed to a trickle, and that acquisitions have almost exclusively been by companies with a regional focus.

While consolidation has had one set of ramifications for scrap recyclers, another consolidation scenario is unfolding that affects the municipal recycling market.

Waste haulers have been consolidating over the course of the 1990s at a rate that outpaces what was seen within the scrap industry—and without as many hiccups. Some recycling program officials and recycling advocates see a cause for concern in the consolidation.

If municipal officials bidding out solid waste contracts are down to just two haulers operating in their area—or worse if they receive only one bid—their leverage in regard to maintaining and maximizing a recycling program decreases greatly.

Officials in many states have been assigned targeted waste diversion rates, and curbside recycling has been identified as an important part of reaching those goals. But at the same time, the plunging recyclable commodity markets have made it increasingly costly for municipalities to maintain their own collecting and processing programs. Likewise, the largest waste hauling firms that see collecting and land-filling trash as their core businesses seem increasingly disinterested in recycling. Browning-Ferris Industries (BFI) was almost certainly the most committed to recycling of the major haulers, but they are now in the process of being acquired.

The economics of recycling did not prove favorable for BFI, and other waste haulers certainly seem to have learned from their experience. At the same time recyclable commodity prices were slumping, the Supreme Court ruled to uphold the flow of municipal solid waste across state lines as interstate commerce that should not be impeded. For haulers, a way to maximize profits from land-filling has opened up at the same time squeezing any profits at all from recycling operations has become a headache.

Recycling advocates are concerned, and how municipal waste and recycling contracts are negotiated over the course of the next few years will be a source of great interest to those in the recycling industry in North America.