Necessary adjustments

Whether considering the typical office place or a home entertainment center, the equipment and devices used in 2015 look and feel remarkably different compared with what was used in the late 1990s or even 10 years ago.

Retailers and purchasers are keenly aware of new technology as it is introduced, naturally, but recyclers of electronic scrap likewise keep close tabs on new technology to determine how and when it will begin affecting their business models.

In the current decade, the shifts in consumer and office place technology preferences have provided one management challenge for electronics recyclers, while volatile (and downward trending) secondary commodity prices have provided another.
 

Obsolete but newer

Terms like scrap, obsolete and end of life (and the misapplied e-waste, which implies discarded equipment has no value) bring to mind images of old console televisions and Commodore computers from a bygone era.

Recyclers who hold postconsumer collection events can testify that items such as these still do turn up when such drives are conducted. The much larger bulk of electronics recycling activity, however, ties into the commercial, governmental and retail returns streams that introduce steadier volumes of computing, telecom and electronic equipment.

This off-lease, used equipment may be considered obsolete or end of life by its first user, but this is often because he or she has purchased newer, faster and more functional technology to replace devices that still work as intended.

This faster pace of technology turnover—in offices and homes—has caused the electronic scrap stream to get younger, which presents both opportunities and challenges to recyclers.

Among the challenges have been smaller average weights of obsolete units, including less metal and precious metal contained in each device. “Over time, we have definitely seen a reduction in the overall amount of precious metals and their recoveries,” says John Shegerian, chairman and CEO of Electronic Recyclers International (ERI), Fresno, California.

Plastic continues to grow as a part of the overall materials stream, which in itself is a mixture of opportunities and challenges. “The plastics market is better but still doesn’t significantly impact our overall revenue,” says Sean Magann, vice president of sales and marketing for Sims Recycling Solutions Americas, West Chicago, Illinois

Mark Matza of Fortune Metal Midwest LLC, Naperville, Illinois, says the “Green Fence” inspection laws enacted in China in 2013 created a considerable barrier. “Not only did import duties increase, but the types of plastic we could mix in a container were reduced from many to two. Plus we could no longer maximize weight by mixing plastic with metal,” he comments.

On the positive side of the ledger, Matza says, “We have noticed more buyers and manufacturers using recycled-content resins in North America, in some cases at better prices.”

Although recyclers may miss the higher percentage of precious metals found in some older equipment, most are glad to see cathode ray tube (CRT) technology being phased out. Unfortunately for the e-scrap sector, the lingering impacts of dealing with the lead-laden CRT units likely will continue to affect the regulatory climate they face. (See the sidebar, “The CRT Hangover,” on the right.)

As recyclers manage an e-scrap stream that consists more and more of equipment that is dated but still functioning, among the opportunities is refurbishing and remarketing this equipment or in harvesting marketable components.

Because prices for secondary commodities—especially metals but also plastics at times—have trended downward this decade, recyclers say refurbishing and value-added services have become more critical.
 

Losing and adding value

As the electronic scrap stream evolves, the mixture of materials available to sell as secondary commodities changes along with it.

Original equipment manufacturers (OEMs) did not sit still during the commodities boom of the prior 15 years, often making adjustments specifically to avoid using high-priced materials.

“We have noted a decrease in valuable metals (gold) within traditional client equipment, including laptops and personal computers, over the years,” Magann says.

All is not gloom on the precious metals front, however. “Tablets and mobile devices continue to increase as a percentage of our inbound material; and these devices, while much smaller, have a greater concentration of valuable precious metals,” he adds.

Even if they find precious, nonferrous and ferrous metals to extract, in 2015 electronics recyclers have been faced with falling prices for nearly all scrap metals.

To remain profitable when this revenue stream shrinks can require taking several different actions, recyclers say.

Magann says, “If the business model is strictly recycling, there are two choices: reduce payments to customers or cut costs.”

“We try to use formulas tied to metal market indicators so the changes are automatic,” Matza says of his company’s metal price exposure.

Regarding plastic, he adds, “Some plastics that were [technically] recyclable went into landfill, but more of our large environmentally sensitive customers are now paying us to see they are recycled.”

In the metals market, Shegerian of ERI says, “Because we have two strategic minority investment partners—LS-Nikko Copper and Alcoa—as important parts of the ERI ecosystem, we have the most collapsed and direct relationship with smelters in our industry. Therefore, we get the best prices overall.”

The recyclers also say the layers of service inherent in working with large-scale customers means fluctuating metal prices seldom make a difference when maintaining a long-term relationship with generators of obsolete electronics.

“At Sims, we look to provide value-added services to our customers through asset tracking, data erasure and serial number capture,” Magann says. “This helps reduce the impact of commodity prices to our business.”

Shegerian says, “We cultivate and maintain personal, one-on-one relationships across our entire client base, which enables us to engage in regular dialogue about the state of the industry and various trends that come and go. Our clients are constantly aware of the world of commodity markets, and we engage in discussions with them so they understand the reasoning behind any transaction term adjustments.”

Magann says the blend of services offered by Sims Recycling Solutions, including data security, means “more of our customers are fee-for-service customers whose terms (and revenue for Sims) are only minimally impacted by changing commodity prices.”

All of the recyclers contacted maintain that the opportunities available from refurbishing and harvesting components have only increased as commodity prices have drifted downward.
 

Second life

Both SRS and ERI operate several electronics shredding plants (Fortune Metals does not), but all three recyclers say properly assessing the inbound e-scrap stream for working and repairable units is a mainstay of their businesses.

“Regardless of commodity prices, emphasis on reuse, resale and refurbishment is a sound strategy,” Magann says. “A very substantial part of our revenue comes from reuse,” he adds.

Shegerian says, “We have been organically growing the refurbishment and component harvesting sectors per ERI’s core business model, so that is a direction we have been heading in regardless.”

“Refurbishment has always been a preference,” Matza says of Fortune’s approach. “There are still huge markets for components, subassemblies and devices for repair and reuse, if allowed by the supplier.”

Magann describes repair and refurbishment as “the most efficient form of recycling, and if done correctly, can mitigate data risks while returning additional value to the client.”

Although manufacturers of computers, tablets and smartphones continue to create hybrid devices that cross over among all three categories, Shegerian says this trend can be as much of an opportunity as a threat to the business model of electronics recyclers.

“As for rapid changes in technology, yes it absolutely is [happening], and that’s something we embrace,” he comments. “In fact, technology is changing so rapidly that we don’t see limitations there so much as opportunities—to grow, innovate and explore new revenue streams alongside the constantly evolving technology sector.”

In addition to being alert to refurbishment and component resale opportunities, Matza says Fortune Metal also views disassembly as a way to maximize secondary commodity returns. “If the scrap must be destroyed, we have found dismantling to yield a cleaner product,” he remarks.

However, Matza does not discount the role of the shredder in the electronics recycling process nor the notion that shredder operators have improved the quality of their output. “Recently I visited a shredder using very expensive and highly technical equipment to separate plastics from metals. The only issue is the plastics are mixed, and [the operator] obviously has a consumer who desires this product. Sometimes [finding the right] end consumer is the most valuable part of the process.”

There seems little question that electronics recyclers will have both rapid and steady changes to cope with as a business reality for the foreseeable future. “The evolution continues,” Matza says.

The author is editor of Recycling Today and can be contacted at btaylor@gie.net.